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Time-Bucketing A Retirement Investing Plan

Time-Bucketing A Retirement Investing Plan

| April 01, 2021

Retirement is one of the biggest transitions of life, and it naturally brings up a lot of questions. For many people, the most pressing is whether existing savings will be enough to provide the life they want, for the entire length of retirement.

The traditional way to invest in retirement was to shift a portfolio into a lower-risk asset allocation, usually by increasing the percentage invested in fixed-income securities. This lowered portfolio risk while also creating more income from the yield on the bonds. The retiree would then withdraw a set percentage every year, adjusted for inflation.

Retirement today often lasts longer than it used to as people live longer – 20 or 30 years is now normal – which not only means that savings have to stretch further, but also that it doesn’t make as much sense to forgo growth on a portfolio that may not be needed for more than a decade. And with the low-yield environment that has become the norm, it’s harder to create the desired amount of income.

 An innovative way to think about investing in retirement offers a solution. We break it down.


A Time-Based Approach

The first step of retirement planning, whether using a traditional approach or time-bucketing, is to set up a realistic budget. In order to accurately identify expenses, it’s necessary to put some thought to what retirement will look like. Will it include downsizing a home? Purchasing a second home to be nearer to family or to create a space to gather and create memories for generations to come? Whatever it is, building a budget should take this into account. Once expenses are identified, income comes into play.

The time-bucket strategy starts by placing priority on your immediate needs while allowing money you’ll need in the future to continue to grow. The strategy splits retirement assets into three separate categories, dependent on when they’ll be needed:

  • Funds needed over the next three years
  • Funds needed 3-10 years
  • Funds needed in 10+ years

So for example, the money that you’ll need over the immediate future would belong in the first bucket.  Since these funds are for current needs, they would primarily be held in cash or short-term investments.

The second bucket consists of funds that are needed over a three-to-ten year horizon. For this bucket, preserving capital will be the priority, with a smaller amount allocated to investments that offer growth. This bucket is often where the bulk of retirement income will come from, so the specific investments will reflect this.

For the last bucket, the goal is for these funds to continue to grow. Because they are reserved for the later retirement years, they’ll be able to benefit from strong markets and will have time to recover from downturns. 

The asset allocation for both the second and the third bucket will likely be some mix of bonds, stocks and alternative investments, and as always it should fit the investor’s risk profile. Just like during working years, the most important thing about investing in retirement is that it is long-term and staying invested is critical to success.


Getting Started

One of the advantages of time bucketing your retirement strategy is that it puts a priority on developing a plan.  By using time buckets, you get the opportunity to think about what your future expenses could be and what your retirement lifestyle will look like.

Having an understanding of expenses is an important piece of the strategy because it determines how much needs to be put aside in cash and how much to begin placing in other buckets.  Each bucket determines how funds will be invested so it’s crucial that the spending and withdrawal projections are accurate to avoid pulling funds from another bucket too early. No matter how much accurate the planning, however – unexpected things will come up. For this reason, it’s important to build flexibility into the asset allocation in each bucket.


Bottom Line

Time bucketing not only helps plan out an investment strategy that can help your retirement savings provide across an entire retirement, it can also spark a planning process seeking to ensure retirement meets just as many life goals as the working years did.

As with all investment strategies, there comes a certain degree of complexity. Working with an experienced advisor will bring clarity to your questions, be there as a guide through the execution, and ease some of the frustrations commonly felt in retirement.



The information contained herein is intended to be used for educational purposes only and is not exhaustive.  Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return.  If applicable, historical discussions and/or opinions are not predictive of future events.  The content is presented in good faith and has been drawn from sources believed to be reliable.  The content is not intended to be legal, tax or financial advice.  Please consult a legal, tax or financial professional for information specific to your individual situation.

This content not reviewed by FINRA