What is the 3-Bucket Retirement System
You divide your retirement money into 3 buckets:
Bucket 1
Cash that you will need in the next year or two (in addition to your social security payment and pension payment) that covers major expenses, such as a vacation, a car or a new roof.
Bucket 2
Money you will need in the next 10 years. You will invest conservatively in this bucket, as its purpose is more like a hedge again a market crash.
Bucket 3.
Money you will need in the more distant future, either for you or your heirs. You could invest very aggressively here because you have a long time horizon for funds in this bucket.
How to Use the 3-bucket System?
This 3-bucket system will give you peace of mind - knowing that you are well covered for your retirement needs, even there is a stock market crash tomorrow!
If the stock market does well, allocate some of the funds from either bucket 2 to bucket 1 or from bucket 3 to bucket 1 or 2.
In next blogpost we will give an example how a $500K retirement fund could be allocated across the 3 buckets and what kind of investments each bucket could have.