It’s no secret that people are living longer these days thanks to medical advances and healthier habits. But longer lives can put stress on the sustainability of retirement assets. There’s no easy formula to make retirement savings last several decades. But a “bucket” approach may help provide you with greater security, no matter how long you live.

Two Forms

1. Expenses bucket strategy. With this approach, you segment retirement expenses into three buckets: 
Basic living expenses, including food, rent and utilities.
Discretionary expenses, including vacations, entertainment and dining out.
Legacy expenses, or what you want to leave to heirs and charities.
This strategy pairs appropriate investments to each bucket. For instance, Social Security might be assigned to the basic living expenses bucket. If this source of income falls short, you might consider whether a fixed annuity could help fill the gap.

2. Timeframe bucket strategy. This approach creates buckets based on different timeframes and assigns investments to each. For example:

1-5 years. With only a few years until retirement, you’d fill this bucket with cash and cash alternatives, such as money market accounts. This bucket will fund near-term expenses, so funds should be easy to access. 

6-10 years. Investments might include a diversified, high-quality bond portfolio or a mix of bonds and “blue chip” stocks. This bucket is designed to help replenish funds in the 1-5 years bucket. Note that diversification is an approach to help manage investment risk, but it doesn’t eliminate the risk of loss if security prices decline.

11-20 years. This bucket would be filled with investments that offer growth potential, such as domestic and, potentially, foreign stocks.

21+ Years. For this bucket, you would consider longer-term investments such as large-, mid- and small-cap stocks, bonds of various maturities and quality, and international securities.
Each bucket should be replenished by the next immediate, longer-term bucket. The bucket approach can offer flexibility. For example, if stock prices move higher, you might consider replenishing the 6-10 years bucket even though it’s not quite time.
Weigh Your Options
A bucket approach to pursue your income needs isn’t the only way to build an income strategy. But it’s one strategy to consider as you prepare for retirement. Talk to your financial advisor to discuss your options.

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