Putting money into different “buckets” is a form of asset diversification that works as a retirement strategy. It’s also a risk management technique for investing, as it helps preserve capital. Here’s a look at the various ways to set up a retirement bucket strategy.
Retirement bucket strategy based on phases of retirement
A retirement bucket strategy can be set up based on a time horizon, such as short-term or long-term. It can reflect the different phases of retirement. The first five years might be a plan to make cash easily available, and the next five years might involve a bucket for passive investing. After a decade of retirement, you can get deeper into more diverse investments in stocks or funds.
Retirement bucket strategy to insure near-term spending
A near-term retirement bucket strategy involves setting aside a certain amount of spending cash for the first year of retirement. The money can be held in cash, whereas in the second year, you can hold the money in short-term bonds. For the third year, you can hold funds in intermediate-term bonds. After that, you can hold money in any investment account you feel comfortable with.
Retirement bucket strategy based on needs and wants
Another way to divide your retirement money into buckets is to set up separate accounts for needs and wants. The bucket for needs should be for the cost of living expenses and only safe investments. Another bucket can be set up for investments with moderate risks, while a third bucket can be for vacations, gifts to loved ones, and other wants.
Retirement bucket strategy based on types of spending
A more detailed type of retirement bucket strategy is to create buckets for precise spending, which may include buckets within buckets. You can set up a wide variety of buckets for necessities and hobbies. One bucket can be for emergencies, while other buckets exist for daily expenses, healthcare, and entertainment.
What Are the Disadvantages of a Retirement Investment Strategy Based on Buckets?
Even though a retirement investment strategy based on buckets can help you organize your finances, it can get very complex and confusing. After a while, it can get difficult to manage if the strategy contains excessive variables. It can also increase risks over time, especially if an investment portfolio is poorly managed.
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Choosing Your Strategy
Setting up the right retirement bucket strategy for your wants and needs can be challenging. It’s helpful to get guidance from experts who point out options for developing financial security for your family after you pass away. Contact us at Premier Protection for more information on customizing your retirement strategy.
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