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From The Wall Street Journal: Do ‘Bucket’ Investment Strategies Make Sense in Retirement?

BY Spectrum Wealth Management | Mar 24, 2022
By Glenn Ruffenach
March 3, 2022

What do you think about “bucket” strategies when it comes to managing investments in retirement? Do buckets, in the long run, produce better results than other withdrawal strategies?

Using a bucket strategy—dividing your money into a handful of simple categories for an important goal—is a fine way to manage and tap your nest egg in later life. This approach, though, likely does more for your mental health than it does for your portfolio. 

Financial planners first began using buckets in the mid-1980s to help investors generate income in retirement. The picturesque term helps investors visualize the process. And yes, the mechanics are relatively simple. An investor, typically, sets up two or more buckets, each of which holds specific kinds of investments with different purposes and levels of risk. (You can do this within a single retirement account and simply track—on a spreadsheet, for instance—which investments are in which bucket.)

In a three-bucket model, the first bucket would hold cash—enough to cover about two or three years of living expenses. The other buckets mostly would hold, respectively, bonds and stocks. As cash from Bucket No. 1 gets spent, Nos. 2 and 3 are tapped to replenish No. 1—how much stock is sold compared with bonds depends on how each is performing.

Ideally, this process generates a steady payout in later life and helps insulate retirees from market gyrations.

That simplicity, not surprisingly, is what attracts many investors. But, to return to your question, simplicity doesn’t necessarily translate into better performance.

Some of the best research on how buckets perform comes from Joe Tomlinson, an actuary and financial planner who writes about retirement finances. In a study published in 2020, he looked at how various withdrawal strategies, including buckets, would fare over a 30-year retirement. In other words: Would an investor end up depleting his or her savings?

Mr. Tomlinson found that buckets, for the most part, did no better—or worse—than several other approaches. I won’t dive into his math here. (It’s tied, in large part, to the relationship between stock returns from year to year. You can read the research in full, “Bucket Strategies—Challenging Previous Research,” at But the lesson is clear: Using a collection of pails to manage your money isn’t likely to give you fatter returns or help your nest egg last longer.

So…why bother with buckets? Because they’re designed to stop investors from making a fundamental error: selling stocks in down markets. Again, the sizable cash cushion in Bucket No. 1 means you don’t have to worry about where your paychecks are coming from if the sky is falling. What’s more, that knowledge—that confidence, if you will—makes it more likely that you’ll stick with your investment strategy in the long run.

Says Mr. Tomlinson: “Where buckets can work is [giving] clients peace of mind, even if they don’t make a difference in terms of financial performance.”

One of my favorite writers about retirement planning, Christine Benz, director of personal finance at researcher Morningstar Inc., has written extensively about bucket strategies and developed a series of hypothetical portfolios. Registration may be required.

This article was written by Glenn Ruffenach and published in the Wall Street Journal on March 3, 2022.


Spectrum Wealth Management, LLC is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. Additional information about Spectrum’s investment advisory services is found in Form ADV Part 2, which is available upon request. The information presented is for educational and illustrative purposes only and does not constitute tax, legal, or investment advice. Tax and legal counsel should be engaged before taking any action. The opinions expressed and material provided are for general information and should not be considered a solicitation for purchasing or selling any security.