After years of building businesses, investing wisely, and creating a comfortable life, the focus of many high-net-worth individuals shifts from growth to stewardship during retirement. Most think of protecting their lifestyle, preserving capital through market cycles, and deciding what kind of legacy to leave behind.
For some, that legacy means providing for future generations, while for others, it’s about ensuring their wealth supports the causes and communities that matter most to them. Regardless of where you fall, you’ll want your wealth to last as long as possible. That’s where the retirement buckets strategy comes in.
By dividing your portfolio into short-term, intermediate, and long-term buckets, you can sustain your lifestyle and preserve your wealth through fluctuating markets. Let’s look at how each bucket works and how they fit together.
Short-Term Cash: Your Spending Bucket
Your first bucket holds the money you’ll need for day-to-day living for the next year. The goal is to keep enough cash or cash-like assets so liquidity is never a problem. The exact amount of this bucket will depend on your spending patterns, sources of cash, and your comfort level in having access to emergency spending.
This bucket would typically include highly liquid and low-risk assets like high-yield savings accounts, short-term Treasury bills, or money-market funds. They may not deliver big returns, but they’ll be accessible whenever you need them.
This bucket is filled back up as gains and income are pulled from your growth assets as needed. Worried about down years in the market? Of course, we plan for that too in our Safety Net Bucket
Safety Net: Intermediate Term Spending Bucket
The second bucket bridges the gap between your immediate spending needs and long-term growth. Its purpose is to provide stability, income, and smooth volatility over the medium term, usually four to five years. In this bucket, you hold government and corporate bonds, which provide income with less volatility than growth assets.
The purpose of this bucket is to last long enough to weather downturns in the stock market and growth assets. It also provides liquidity while less liquid assets, such as private equity, infrastructure or real estate, grow.
For high-net-worth investors, this bucket can also support bigger life events, like home improvements, charitable gifts, or helping children and grandchildren. As it’s less volatile than pure growth assets, it offers flexibility for these planned withdrawals.
The key here is balance: you want enough income to sustain you, but not so much risk that a market dip threatens your short-term security.
Long-Term Growth: Your Longevity Bucket
The third bucket is where your long-term wealth continues to work for you, with a time horizon of about five years or more. This bucket holds your equities, private investments, real estate, or other higher-risk, higher-potential-return growth assets that can outpace inflation.
Since you’re not relying on this money for immediate spending, you can ride out market volatility with confidence. When markets fall, you can simply wait it out as your short-term and intermediate buckets will be enough to cover your needs. When markets rise, this bucket can be tapped to refill the others or fund larger goals like legacy and estate planning.
For affluent investors, this bucket often overlaps with legacy goals, such as funding trusts, charitable foundations, or wealth transfers to the next generation. It’s also a good place to consider tax-efficient strategies, such as Roth conversions or donor-advised funds, that align with both growth and giving.
How The Buckets Work Together
When the market drops, it’s tempting to react, but reacting often leads to selling at the wrong time. The three-bucket strategy protects you from that emotional spiral.
If a downturn hits early in retirement, you can draw on the first two buckets while waiting for the market to recover. Once it does, you can replenish your short-term funds from the growth bucket. This way, you’re never forced to sell investments at a loss, and your portfolio stays aligned with your goals.
It’s also a practical way to manage taxes. Withdrawals from different buckets can be sequenced based on how they’re taxed by using taxable accounts first, then tax-deferred, and saving tax-free assets for last. With thoughtful planning, you can smooth out your income in retirement and minimize your lifetime tax bill.
Creating A Plan That’s Built To Last
Leveraging the retirement bucket strategy is not a one-time exercise; it’s an ongoing process that requires regular review, especially when markets shift or your goals change. It is also critical to understand the risks in the underlying investments so they do not surprise you when markets shift or recessions hit.
At Keen Capital, we work with high-net-worth individuals and provide white gloved service to generational investment management. We’ll help you create a retirement portfolio that’s resilient in all market environments.
If you’d like to see how your current portfolio holds up under different market conditions, reach out for an introductory consultation.
