Broker Check

By the Bucketful

August 25, 2022
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When it comes to retirement, one of the most common questions we hear is “how do I get income?” You’ve saved and accumulated, so how do we now transition your investment accounts into income. Well, there are many different strategies, but one of the most common is the Bucketing Strategy. In this strategy, funds are grouped into 3 “buckets” that we tap into at different times, and for different reasons.

So, what are these 3 buckets?

  1. The Short-Term Bucket

The short-term bucket is where you'll hold the money you need access to now and in the near future. Ideally, you want to hold enough cash in this account to cover your expenses for about 12 to 24 months. For example, if your annual expenses for living are $40,000 then we would recommend the balance of this bucket remain at $40,000 to $80,000. You could hold this money in a couple of different accounts, like a high-yield savings account, bank savings or a money market account. The primary concern for this bucket is to keep the funds accessible and relatively safe while earning a modest return, if possible, typically in the form of interest. We would recommend that you maintain the ability to access these funds quickly and without penalties or restrictions.

  1. The Mid-Term Bucket

Our next bucket asks us to look further into the future. The mid-term bucket is designed to cover your expenses for the mid-term, perhaps 3 to 10 years from now. Mid-term expenses could include future car purchases, weddings, second homes, gifts, or special trips. You will want the funds in this bucket to grow enough to provide income through those years, but you don't want to invest this money in something that is high risk. Instead, you want to keep it in a low-to-moderate risk category that offers a reasonable return. Examples of this type of investment could include bonds, longer term CDs, certain annuities, or other fixed income.

  1. The Long-Term Bucket

Lastly, we have the long-term bucket. In the long-term bucket, we are hoping to see growth. If you follow the plan, you won't be touching these funds for several years since you’ll be tapping into your short and mid-term buckets. Therefore, the funds you've allocated to this bucket have one goal — to outpace inflation – and we will want to invest this money more aggressively. This is where stocks, and equity mutual funds will come into play. We are also relying on the growth in the long-term bucket to refill the short and mid-term buckets when needed.

How does Stonegate Financial implement the Bucketing Strategy?

Like any distribution strategy, bucketing can be individualized based on needs and preferences. While we do have clients that utilize separate accounts for their buckets, we can also accomplish this style of bucketing while consolidating the numbers of accounts you have through asset allocation. For example, perhaps you have an IRA with us – within that IRA, we have short-term, mid-term, and long-term holdings. When you call and request a distribution, we have the option to pull from the short-term bucket within the IRA and leave the mid-term and long-term alone. This is especially important during down markets when we want to do our best to give time and allow volatile holdings like stocks to rebound rather than selling at a loss.

This bucketing strategy within your accounts, coupled with a healthy amount of cash on hand to accommodate for distribution needs for 12-24 months can also help you ride the wave of the stock market without panicking or jumping out of the market. Let us help you keep your buckets full!

If you have questions about your retirement savings or distribution strategies, please reach out to your Stonegate Team at any time.



The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.  Expressions of opinion are as of this date and are subject to change without notice.  There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.   Investing involves risk and investors may incur a profit or a loss. Past performance does not guarantee future results.