Dividing your nest egg into “buckets” can be a safe and simple way to generate retirement income while still participating in the long-term growth of markets. On top of that, it does wonders for your sanity.
That’s because drawing down your nest egg in retirement can present two catastrophic risks. Invest too heavily in stocks and a crash could wipe out your entire portfolio in just a few short years. But play it too safe and you could otherwise go broke from piddly returns.
Bucket strategies solve for these risks by compartmentalizing your portfolio into separate pools, each defined by the number of years until you’ll need them. So rather than make one single asset allocation decision for all your savings, you can instead build a series of more accurate portfolios guided by distinct time horizons.