What Do Buckets Have To Do with Retirement?

I keep reading about the bucket plan with respect to retirement. What exactly do they mean by the bucket plan? Really, you could have a lot of buckets and then get confused over the number of buckets and what and how much to put in each bucket.

Let’s break down some of the buckets you may need to ensure a healthy retirement:

(1) Let’s use a bucket to include enough funds to cover your financial needs now, such as paying your monthly bills.

(2) What about a bucket to cover your financial needs soon, let’s say in the next five years? Maybe this bucket can be used to purchase a new home or vehicle. Or even an emergency fund to cover such items as unanticipated medical expenses or a job layoff.

(3) And, of course, we need a bucket to include enough funds to ensure you do not outlive your money in retirement.

(4) With respect to the allocation of your investments, why not throw them into buckets too? What about a bucket for your large cap investments? And one for bonds? What about real estate and even cryptocurrency?

Think I am finished with the buckets as they pertain to your retirement? Well, not quite yet..

Might as well throw in a few more buckets to make this a tad more interesting, if that is the best term to use here. More diversification is needed so here are a few more buckets:

(5) Employer retirement plans, such as 401(k)s and 403(b)s

(6) Traditional, Simple and SEP IRAs

(7) Roth IRAs and Employer 401(k)s

(8) Employer or Government employer-funded pension plans – If only we ALL had access to a pension!

(9) Company stock and company profit sharing plans

(10) Annuities and life insurance products as an option for retirement income

(11) Certificates of Deposit

(12) Social Security

I know the number of buckets needed to ensure a healthy retirement may seem obnoxious, but they are necessary to ensure you don’t outlive your money in retirement. Maybe if you have enough diversification in your retirement accounts via these buckets, you won’t need to worry about how much money you need in your retirement accounts. Or need to worry about inflation, market volatility or even taxes for that matter. For example, a steady stream of retirement income can help you to avoid the pitfalls of pulling large sums of money from your retirement accounts in a down market which can result in a double whammy to your retirement accounts and quickly eat away at your retirement savings.

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