A separate bucket for discretionary expenses offers several advantages in retirement planning.

First, it allows the discretionary bucket to target a different rate of return, since these expenses can tolerate more investment risk than essential spending. Second, it enables a different protection level, meaning fewer guaranteed years may be needed compared with core living expenses.

Third, it allows a custom protection glide path. For instance, this year’s bucket might hold enough for 5 years of expenses, next year’s bucket 6 years, and the following year’s bucket 7 years.

Finally, it enables cascading protection. For example, a five-year safety structure might protect the first year 100%, the second 90%, the third 80%, and so on, balancing flexibility, growth potential, and spending security.