Retirement Bucket Strategy FAQs

CherishBuckets is an asset-allocation tool that lets the bucket approach determine the portfolio’s asset allocation.

With a traditional fixed asset allocation, it is relatively simple to choose a stock/bond mix. Bucketing is different. The appropriate allocation depends on several variables that need to be mapped out, such as whether to use a 2-bucket or 3-bucket model, how many years of expenses to hold in the Safety bucket, what percentage of essential and discretionary expenses to cover, and whether Safety-bucket coverage should rise, stay stable, or fall throughout retirement. CherishBuckets helps map out these variables and demonstrates how they affect the resulting asset allocation.

Once advisors and clients determine the appropriate asset allocation using bucketing, they can apply a similar allocation in their planning software, whether that is RightCapital, Boldin, or another platform.

Neither approach is inherently better. Some retirees prefer having a Safety bucket covering a set number of years of expenses, while others are more comfortable maintaining a fixed percentage in debt throughout retirement. The choice depends on the retiree’s preferences, goals, and financial style.

There are, however, three situations where a bucket strategy can offer distinct advantages over a fixed asset allocation (FAA) approach.

Consider a retiree withdrawing only 2% of their portfolio each year. With a low risk tolerance, an FAA approach may lead them to hold a relatively high percentage in bonds. With bucketing, however, even ten years of expenses would represent only about 20% of the portfolio. The retiree can therefore maintain ten years of expenses in the Safety bucket while potentially keeping a larger portion of the portfolio in Growth assets.

When markets perform well, a bucket strategy can allow excess returns to accumulate in the Growth bucket while the predetermined amount of expenses remains in the Safety bucket. As the Growth bucket increases, the percentage of the overall portfolio held in safer assets can fall. With a fixed allocation, periodic rebalancing brings the portfolio back toward its target percentages. For retirees who are already comfortably funded and have strong legacy goals, these different approaches can produce meaningfully different allocations over time.

Bucketing can also make it easier to account for large expenses that occur at specific points in the future. For example, if a retiree expects to purchase a house 15 years from now, the amount needed for that purchase can be incorporated into the bucket strategy. As the purchase gets closer, more of the required funds can move into the Safety bucket. A fixed allocation can be less intuitive for handling expenses with a specific future date.

The bucket approach can be designed in multiple ways, and there is no single right or wrong answer. CherishBuckets stands out by providing more variety in how the bucket approach can be modeled. Users can choose from a range of 2- and 3-bucket models and customize important variables, including the number of years of Safety-bucket coverage, how that coverage changes over time (the glidepath), and the percentage of essential and discretionary expenses they want covered.

CherishBuckets also provides different calculators for each model, with each one designed to solve a different planning problem. For example, a retiree can set a specific legacy goal and calculate the lump sum required to fund that goal using a bucket strategy. Alternatively, they can start with a specific portfolio and legacy goal and calculate exactly how many years of Safety-bucket coverage they can afford while still reaching that legacy goal.

CherishBuckets is primarily designed for financial advisors who use, or are considering using, the bucket approach for retirement portfolios. It is particularly useful for advisors who want to explore different bucket models and determine how variables such as Safety-bucket coverage, essential and discretionary spending, and glidepaths affect the portfolio’s asset allocation.

No. We keep things simple and leave taxes and fees for financial advisors to discuss with retirees.