How to Use the Bucket Investment Strategy for Your Wealth Management

See all Posts
February 3, 2020

Like all wealth management and investment strategies, there are numerous different approaches you can make. Some come with more risk than others, while those with greater risk also comes with greater rewards. 

William Bengen’s famous ‘4% rule’, referring to an apparently ‘safe’ withdrawal rate from a £100,000 tax-advantaged portfolio, has underpinned retirement income strategies for years.

Previously we have spoken about: 

But today, we want to focus more on the benefits bucketing investment can bring your pension and long-term wealth management strategy. More specifically: 

  • What is a bucket strategy? 
  • When should you use a bucket strategy? 
  • What are the benefits of a bucket strategy? 
  • Who can manage a bucket strategy? 
  • Is a bucket strategy suitable for you? 

What is a Bucket Strategy? 

Bucket or segmentation strategies divide your retirement portfolio into different “buckets” depending on the time remaining until withdrawal and your risk appetite. 

“Approximately 30% of wealth management and retirement plans use the bucket strategy.“

For example, the first bucket may contain cash and cash equivalents needed over the next five years, while the last bucket may contain riskier equities that won’t have to be sold for a decade or more. These buckets can be rebalanced at any time to reflect changes in income requirements or risk tolerance. 

Bucket strategies comes with a degree of control, something other strategies such as Systematic Withdrawals can’t offer. The great thing about bucket strategies is the fluidity your wealth manager has to move investment around with little to no penalty of complexity. 

Bucket approaches have great intuitive appeal, as they insulate you from concern about the impact a fluctuating market might have on your retirement.

When Should You Use a Bucket Strategy?


The central premise behind the bucket concept is to create a series of buckets invested according to when you may need the money, with each run in isolation.

When thinking about your retirement planning the bucket approach can help define the why of your plan. 

Under the strategy, retirement is defined as three or more distinct time frames or “buckets”:

  1. Your go-go years (the first 5 years of retirement),
  2. Your slow-go years (the next 5 to 10 years), and
  3. The no-go years (the remaining years of retirement and many years from today).

Segmenting your retirement into specific time frames, you’re prioritising the times you will need your money the most. Your most likely to want to spend the first five years of your retirement doing the things you’ve always dreamed of doing go-go years, and less chance of you doing more in 25 to 30 years of retirement.

In the beginning years it’s more important that you have spending and funds available for the near term expenditures.

What are the Benefits of a Bucket Strategy? 

The bucket strategy approach provides you with the flexibility of finding the right level of risk and reward to meet your retirement goals. 

This level of flexibility is hard to find compared with other investment strategies. Most investment strategies come with templates and levels of rigidness. Preventing your wealth manager from providing a fully bespoke retirement strategy.  

There are two typical approaches to the bucket strategy. The three buckets and the four bucket approach. 

The three bucket approach usually follows: 

  1. Bucket one - Instant access to funds to pay for your lifestyle 
  2. Bucket two - Low risk investments designed to top up your first bucket 
  3. Bucket three - A more investment focused approach designed to build a large pot of funding for the remainder of your retirement 

The four bucket approach: 

  1. Bucket one - Same as above
  2. Bucket two - Stable and proven investment for smaller returns 
  3. Bucket three - A medium level of risk designed to find a middle ground between bucket two and bucket four
  4. Bucket four - Largest opportunity of long term growth 

The various levels of buckets can quickly add complexities to your wealth and investment management.  

Who Can Manage a Bucket Strategy? 

Bucket strategies require a certain level of understanding to be fully effective. 

If left un-managed or neglected, they can quickly become ineffective. The largest level of expertise required is knowing when and how to shift your strategy between the levels of risk. 

An experienced and qualified wealth manager will have an understanding of the various options available. With a significant amount of knowledge and access to portfolios, they are likely to have industry leading information unavailable to most. 

However, you can manage your very own budget investment strategy. There are a few frameworks that are used throughout the industry to help guide the creation.

Is a Bucket Strategy Suitable For You? 

Any investment strategy should first of all start by understanding your retirement goals. 

Not all strategies will meet everyone's needs. You should build a comprehensive understanding of your current assets and retirement income sources like pensions, 401(k)s, and social security. 

Followed by an in-depth understanding of your overheads and potential up-coming outgoings. If your assets don’t cover your spending needs, you’ll need to find a way to address the shortfall. 

A bucket strategy is suitable for you if you are working with a leading wealth management company, such as Ai Investment Group, who has the understanding and know how to manage a diverse portfolio. 

The bucket strategy will provide you with the flexibility to withdraw early, invest further or tweak the risk associated to your wealth management.