Bucket Strategy For Retirement: The Pros & Cons Explained

Bucket retirement strategy

A bucket strategy for retirement planning sounds great in theory. It actually makes a lot of sense on the face of it.  But is it all it’s cracked-up to be? Or, does it cause unnecessary complications?

This article explores how a bucket retirement strategy works, as well as its pros and cons. Plus, I’ll show you the alternative I prefer to a bucket strategy.

What is a Bucket Retirement Strategy?

A bucket retirement strategy refers to the organisation of your retirement investments in such a way that the funds required to meet your short, medium and long-term goals are held in buckets with varying levels of risk and liquidity.

If properly implemented, a bucket strategy when investing allows you to capitalise on the long-term growth of riskier assets, while ensuring you retain the short to medium-term reliability of funds required to meet everyday expenses.

Let me explain further how a retirement bucket strategy works.

How Does a Retirement Bucket Strategy Work?

The bucket approach is a retirement drawdown strategy that will generally have three buckets, as follows:

Bucket NumberInvestment TimeframeTypes of InvestmentsBalance in Bucket
Bucket 1Short-TermBank Accounts, Term Deposits12 Months' Living Expenses
Bucket 2Medium-TermFixed Interest, Bonds, Moderately-Conservative Managed Funds4 Years' Living Expenses
Bucket 3Long-TermShares, Property, Aggressive Managed FundsSurplus

Here’s how it works:

  • Bucket 1 – Bank accounts and term deposits provide minimal returns, but also will not fluctuate in capital value. Therefore, these types of investment provide certainty as to how much you have available to you at any given time. This should be used to cover everyday expenses.
  • Bucket 2 – Fixed-Interest and conservative investments can provide higher returns than bank accounts and term deposits and, although the balance will be somewhat unpredictable over the short-term, it can generally be relied upon to meet medium-term commitments.
  • Bucket 3 – Shares and property are likely to produce investment returns in excess of other types of investments over the long-term, but your investment balance can fluctuate significantly over the short-medium term. However, this should give you the returns required to fund a higher retirement income for longer.

In a practical sense, as Bucket 1 begins to deplete due to you using it to cover living expenses, you will need to tip some of Bucket 2 into Bucket 1 to cover expenses for the next 12-18 months.

And, because you are using Bucket 2 to top up Bucket 1, you will need to be topping up Bucket 2 with Bucket 3, by either taking profits from the increases in value from shares and property and/or by directing all income from shares and property into Bucket 2.

Related Article: Best Tax Strategies for Retirement

The Benefits of a Bucket Strategy for Retirement

Now that we know how a bucket strategy works, what are the benefits of a bucket strategy for retirement?


  • Reap the rewards of higher returns, without jeopordising your ability to meet shorter-term expenses.
  • No need to sell growth-oriented investments to cover expenses in what could be unfavourable market conditions.

The Disadvantages of a Bucket Strategy for Retirement

No retirement planning investment strategy is perfect. So, what are the downsides of a retirement bucket strategy?


  • Harder to manage when trying to ensure each bucket has the correct amount in it.
  • There is no set risk profile. The overall portfolio risk could be too aggressive or too conservative for your liking.
  • The amount allocated to each bucket is based on your upcoming expenses, meaning there is no relevance to the actual returns required to meet your objectives or longevity of funds.

While there are advantages to a bucket strategy for retirement, my personal opinion is that it unnecessarily overcomplicates your retirement investment strategy.

If that’s the case, then what’s an alternative approach?

Alternative to the Retirement Bucket Strategy

Personally, I prefer simplicity. I’m a big believer in first determining what your retirement income objectives are and then calculating what investment return is required to meet those income objectives until a desired age.

For example, if you have $500,000 and you would like to retire at age 65 on an income of $50,000 per year for 30 years, increasing with inflation, then you would need an average investment return of around 6% p.a.

So, why not just invest in a cost-effective, well-diversified investment that has a reasonably-high probability of achieving that level of return?

If you would like a higher income, then you might need to take on a higher risk. As long as you understand that the higher return you aim for, the less certain the final outcome will be and the higher possibility of falling much shorter than your retirement income target.

Read This Next: Retirement Planning Strategies

Wrapping It Up

If a simple, yet effective retirement investment strategy is what you’re after, then a bucket strategy approach is probably not for you.

Usually, a diversified investment option with an expected investment return in line with expectations and commensurate level of risk, will suffice. This can usually be achieved through the basic investment options offered by your super fund.

Our financial planning firm, Toro Wealth, specialises solely in helping 50 to 70 year-olds optimise their financial position in the lead up to retirement. If you’re interested in learning more about our service and cost, click here.

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Hi, I hope you enjoyed reading this article.

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Thanks for stopping by - Chris