What is a bucket strategy and how does it protect my retirement income?
The bucket strategy splits your savings by time horizon. Bucket one holds one to three years of spending in cash and short-term instruments for immediate needs. Bucket two holds intermediate bonds for the next several years. Bucket three holds stocks for long-term growth. You spend from the cash bucket, so a market crash doesn't force you to sell stocks at a loss, directly addressing sequence-of-returns risk. In good years you refill the cash bucket from the stock or bond buckets. The psychological benefit is real: seeing a few years of guaranteed spending set aside helps retirees stay invested and avoid panic-selling when headlines turn scary.
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