Retiring with a bucketing strategy
Endowus Insights
Join our in-person China & HK Market Outlook event with Abrdn, Allianz Global Investors, and JPMAM. RSVP here

Retiring with a bucketing strategy

28 Apr
24 Nov

The time-bucket strategy is a way of managing income during retirement. This is done by dividing the retirement portfolio by time horizons of, for instance, one year, three years and seven years.

Each time-horizon bucket contains different asset allocations, and is constructed with different risk profiles in mind. 

What is the bucket approach to retirement?

For short-term expenses, a retiree will draw down from the first bucket, which should therefore consist of highly liquid assets such as cash, fixed-term deposits, and money market funds. 

Money that is not needed in the near future will then be parked in the longer-term buckets. These will comprise a variety of investment options, ranging from those that are conservative or low-risk — such as fixed-income funds and bonds — to the more aggressive or high-risk holdings, such as equities.

Each bucket’s asset allocation is unique to the individual, depending on considerations including risk tolerance, goals, and the size of the retirement fund. 

Why is the time-bucket strategy useful?

The idea of this approach is to balance the need for a stable income stream with capital growth, and to ensure the longevity of the retirement portfolio.

There are many possible variations to the number of buckets and their time horizons.

Here’s an example of one variation to illustrate how the strategy works.

Source: Schroders
  1. Cash bucket: For use within three years, this bucket contains up to three years’ worth of savings to cover short-term expenses. All are held in either cash or short-term deposits.
  2. Defensive bucket: For use in the next three to seven years, the money in this bucket is invested in defensive assets such as bonds.
  3. Equity bucket: For use after seven years and beyond, this is invested in assets, particularly stocks, that are expected to grow over the longer term.

After the retiree spends cash from Bucket 1, the assets in Bucket 2 will be sold down in order to replenish Bucket 1. Meanwhile, an equivalent amount of assets from Bucket 3 will be sold down to refill Bucket 2.

While the transfers from buckets are taking place, the stock-heavy Bucket 3 is diminishing in assets, and will eventually become empty or fully drawn down as time passes. The next to be depleted entirely will be the defensive portfolio in Bucket 2.

Eventually, all that is left will be the cash in Bucket 1. That will be closer to the individual’s end of life expectancy.

Another benefit of the time-bucket strategy is that the different asset allocations can be shifted according to changing needs or preferences, if the investor wishes to do so. For instance, cash in the portfolio or from selling bonds can be used to buy stocks. Stocks can also be sold to replenish the cash and buy more bonds. The presence of the cash buffer offers peace of mind during volatile times and allows you to enjoy your retirement.

What are the pitfalls of the bucketing approach in 2022?

The current turbulent economic and market conditions in 2022 so far have posed challenges for most investment and retirement strategies, including the time-bucket concept.

Given the recent market corrections, the medium to long-term components of the bucket system are seeing price declines, although the silver lining is that Bucket 1 is still available for retirees' cash flow needs.

However, if stocks and bonds continue to fall and the long-term components of the retirement portfolio shrink further, retirees may eventually find it difficult to refill their cash reserves in Bucket 1. 

On top of that, with rising inflation, short-term expenses are likely to increase and require greater withdrawals from the cash cushion, while the purchasing power of the money is eroded.

One way to mitigate this is to ensure each bucket’s allocations are well-diversified, such as by holding bonds of varying tenors and grades, or by buying equities that are of higher quality and lower volatility.

In a downturn, retirees may also wish to spend the organically generated income — from bonds in Bucket 2 and dividend-paying shares in Bucket 3, for example — rather than reinvesting them.

Such lean times have led to some individuals making adjustments such as lowering their standard of living, delaying retirement, or taking on more risks in their portfolios.

The aggressive interest rate hikes of late may offer some comfort. As central banks raise rates to tame inflation, that means some bond and cash yields are going up as well.

Previously, ultra-low interest rates in the past two decades had caused the shorter-term buckets to earn minimal income. Loose monetary policy at the height of the Covid-19 pandemic had also pushed rates even lower.

At the end of the day, the time-bucket strategy is a way to diversify and manage a retirement portfolio. Different time buckets carry different levels of risks. 

No matter what you decide to do to combat inflation and low rates during your retirement, it is important to at least have a target asset mix with an overall risk profile that you are comfortable with.

It's never too late to start investing and it's never too hard to find a team of experts who are aligned with your interests. Open an account in less than 10 minutes and start your investment on Endowus.


Risk Warnings

Investment involves risk. Past performance is not an indicator nor a guarantee of future performance. The value of investments and the income from them can go down as well as up, and you may not get the full amount you invested. Rates of exchange may cause the value of investments to go up or down. 

This article is not intended to be relied upon as a forecast or research or investment advice, and should not form the basis of any investment or other decisions. The information contained herein is not intended, and should not be construed, as any legal, tax, regulatory, accounting or financial advice. If you would like investment, accounting, tax or legal advice, you should consult with your own professional advisors regarding your individual circumstances and needs.

The information in this article may not be suitable for all investors. You are responsible for any action that you take or decision that you make in reliance on any content in this article, and you agree that Endowus HK Limited (“Endowus”) is not liable under any circumstances.

No invitation or solicitation

Neither the information, nor any opinion, contained in this article constitutes a recommendation, offer or solicitation  by Endowus or its affiliates to you to buy or sell any securities, collective investment schemes or other financial instruments or services, nor shall any such security, collective investment scheme, or other financial instruments or services be offered or sold to any person in any jurisdiction in which such offer, solicitation, purchase, or sale would be unlawful under the securities laws of such jurisdiction. 

This is not intended to be an invitation or offer made to the public to subscribe for any financial product or to enter into any transaction.

Accuracy of Information

Whilst Endowus has made reasonable efforts to provide accurate and timely information, there may be inadvertent delays, omissions, technical or factual inaccuracies or errors in any such information. Endowus does not warrant or represent that the information in this article is correct, accurate or reliable. 


Any opinion or estimate above is made on a general basis and none of Endowus, nor any of its affiliates, representatives or agents have given any consideration to nor have made any investigation of the objective, financial situation or particular need of any user, reader, any specific person or group of persons. Opinions expressed herein are subject to change without notice.  

Any forward-looking statements, prediction, projection or forecast on the economy, stock market, bond market or economic trends of the markets contained in this article are subject to market influences and contingent upon matters outside the control of Endowus and therefore may not be realised in the future. 

In presenting the information above, none of Endowus, its affiliates, directors, employees, representatives or agents have given any consideration to, nor have made any investigation of the objective, financial situation or particular need of any user, reader, any specific person or group of persons. Therefore, no representation is made as to the completeness and adequacy of the information to make an informed decision. You should carefully consider whether any investment views and products/ services are appropriate in view of your investment experience, objectives, financial resources and relevant circumstances.

This article has not been reviewed by the Securities and Futures Commission of Hong Kong.

More on this Tag
No items found.
All you need to know about personal finance and investing
Please wait while we are submitting your email...
Thank you! Your submission has been received!
invalid email address

Table of Content