Buckets of Cash: Turning Your Nest Egg Into a Paycheck

Retirement is supposed to be relaxing. But watching the stock market pull 9-Gs up its own tailpipe? Not so relaxing. Enter the Bucket Strategy—a way to keep your income steady and your stress level down.

What Is the Bucket Strategy?

Imagine three buckets sitting in front of you. You’re going to fill them with your hard-earned money like a financial picnic:

• Bucket 1 – Cash or cash-like stuff (think: savings accounts, CDs, money markets). This is your “don’t panic” fund—designed to cover 1–3 years of expenses so you’re not selling stocks in a slump.
• Bucket 2 – A mix of conservative investments (bonds, dividend stocks). Think of this as your financial shock absorber—slightly more risk than cash, but still polite and predictable.
• Bucket 3 – Stocks and growth investments. This one’s wild. It’s where the long-term magic (and volatility) lives. Invest it like you’re going to live to 120.

Why Buckets Work

Buckets = Time Segmentation. You spend from Bucket 1, refill it from Bucket 2 or 3 when the market is friendly, and leave Bucket 3 alone to grow over time. You avoid selling low, stay calm during downturns, and let your investments work in peace.

Who Should Use It?

Mostly retirees—but not exclusively. If you’re saving for a house in 3 years, this still works. Use Bucket 1 for the cash you’ll need soon, and let Buckets 2 and 3 grow for the longer-term stuff.

Starting the Strategy

The catch? Most of us aren’t sitting on 3 years of cash. You’ll need to build it up slowly (or all at once if you’ve got the means).

Let’s say a retired couple spends $120k/year but gets $60k from pensions and Social Security. They’d need $60k/year from investments—so 3 years of cash = $180k in Bucket 1.

Where should it live? Try high-yield savings accounts, CDs, money market funds, or multi-year guaranteed annuities (MYGAs, essentially CDs from an insurance company). Basically: safe, boring, and easy to access.

Timing tip: Don’t try to time the market. Yes, it feels good to fill Bucket 1 when stocks are high—but we don’t have a crystal ball. If the market drops and you need cash, filling Bucket 1 can still prevent further damage.

Managing the Buckets

• In good times, refill Bucket 1 using dividends or gains from Bucket 3.
• In bad times, stop touching Bucket 3. Use cash from Bucket 1 instead.
• Try not to touch Bucket 2 or 3 until markets bounce back—ideally to their pre-downturn levels.
• Each year in retirement, reassess. You’re a year older and (hopefully) a bit wiser—maybe you need less cash than before.

If things get really rough and Bucket 1 runs dry, you’ll dip into Bucket 2 (or 3 if needed). That’s why many retirees keep 3–5 years of cash to avoid selling low.

Refilling Buckets

When the market recovers, you’ve got options:

1. Refill Bucket 1 using gains from Bucket 3.
2. Leave it and let things ride, especially if you’re well into retirement and less worried about long-term volatility.

You probably won’t refill both Buckets 1 and 2—choose based on what matters most: peace of mind or growth.

Pitfalls

• Cash drag: Holding a big cash pile slows growth. If your $1M portfolio includes $180k in cash, the other $820k has to work harder.
• Complexity: One spouse may get it; the other might not. Keep it simple and documented.
• Discipline: You still have to trust the market. Buckets 2 and 3 need to ride out storms—volatility is the price of growth.

Cleared to Rejoin

The Bucket Strategy helps turn chaos into calm. If you’re nearing retirement and want to turn your investments into a steady paycheck, don’t wait for the next market dip—start filling those buckets now.

Your future self will thank you. Probably from a beach chair.

Fight’s On!

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