The Bucket Strategy
A Common Sense Approach to Managing Income
Because not every dollar should be treated the same. The Bucket Strategy simply gives every dollar the right job.
Different Dollars. Different Jobs. Same Plan.
Think of your retirement savings as a series of buckets, each assigned to a different period of retirement. Bucket One covers your first five years; Bucket Two, years six through ten. Each has a different job because you'll need the money at a different time.
Near-term buckets stay conservative and liquid — their job is reliable retirement income, not growth. Later buckets are invested for long-term growth, because those dollars have time to recover from normal market cycles.
You already have next month's five-dollar cup of coffee money in your pocket. It doesn't need to grow. It just needs to be there when you want to buy the coffee.
But the money for that same cup fifteen years from now can't just sit in your pocket. By then, inflation will have quietly changed the price, and the same five dollars won't buy the same coffee.
We never take income from a growth asset.
When markets decline — as they inevitably will — your monthly income comes from safe, liquid assets, not from investments that may be temporarily down. Meanwhile, your growth buckets have time to recover, because you don't need them yet.
Each bucket runs its leg, then hands the baton to the next. As one bucket finishes its job, the next bucket takes over as your retirement income source.
⚠ Hypothetical illustration only. Not representative of any actual investment or account. All investing involves risk including loss of principal.
INCOME FIRST
Near-term retirement income is structured to avoid stock market exposure.
GROWTH WHERE IT HAS TIME
Later buckets are invested for long-term growth because those dollars won't be needed for 10–20+ years.
A PLAN, NOT A PRODUCT
The Bucket Strategy is a framework — a way of organizing what you already have so it can do its job.
Every dollar in this plan has a job. Every job has a timeline. The market runs in the background. It no longer decides everything.
Now that you understand the basic concept, here is a short video that shows how the process can be organized and monitored.
Watch: How Time-Segmented Retirement Income Planning Works
At Lighthouse Financial Strategies, we use Income Conductor as a robust retirement income planning tool. It helps us coordinate income timing, investments, taxes, Social Security, Medicare, legacy goals, and your overall retirement timeline within a broader planning process.
Educational video provided by Income Conductor. Income Conductor is a retirement income planning tool used by Lighthouse Financial Strategies as part of a broader planning process. This material is for general educational purposes only and is not individualized investment, tax, legal, insurance, Medicare, or retirement planning advice. Retirement income strategies are customized based on each client’s goals, financial situation, risk tolerance, time horizon, and planning needs. Investing involves risk, including possible loss of principal.
Read the Income Conductor video transcript
Income Conductor — Creating Your Retirement Road Map
Transcript provided for visitors who prefer to read the video content.
Congratulations! After years of working and saving, you’re finally ready to retire. Now it’s time to set off and embark on the rest of your life’s journey, wherever that may take you.
Imagine your retirement as an exciting road trip that is unique to you. You’ll want a map to guide you to all the places you want to go and all the things you want to do. Having a good map can help you plan your trip and stay on course. Unfortunately, many retirees don’t have a map, or the one they’re using is outdated. They don’t plan for a lifetime income that will cover their expenses and the surprises life may send their way in retirement.
And that’s a problem, because today’s retirement looks completely different from your parents’ or grandparents’. Back then, people could rely on pensions to provide a monthly retirement paycheck. However, not many people today have pensions and instead must rely on their own savings and Social Security for income, despite over half of Americans not feeling confident about the future of Social Security.
Combined with the lack of pensions, it’s even more important to have a plan that answers the question, “How much can I spend?” It can be overwhelming, and it’s no wonder that more than three-quarters of individuals worry about running out of money, and about the same number aren’t confident they can maintain their standard of living throughout retirement.
For your peace of mind and long-term security, you need a plan that addresses your lifetime income goals and how those goals may change—from early in retirement, when you’re more active, to the years when you may have more health care costs. And that plan should also adapt to changes and unexpected needs along the way. Let’s take a look at what could lie ahead on your journey.
Obviously, you don’t want to outlive your retirement funds. That’s like running out of gas on a long, empty road. We can’t predict how long we’ll live, of course, but we do know that most people today can expect to live much longer than previous generations.
And the longer you live, the more likely you are to lose some of the value of your savings due to inflation. Just as everyday common goods and services increase in price year to year, your retirement income should increase to keep pace with inflation. And what happens if the economy slows down or comes to a halt? That’s never a good thing, but it can be a bigger problem when you’re retired.
Unlike your working years, you probably won’t have a salary to replenish your losses. Instead, you may need to look for other income sources or, worse yet, you may have to take even more income from your investments. History shows that investors could experience up to four recessions during their retirement.
So the question isn’t whether you’ll experience a recession in retirement, but rather: Is your retirement plan recession-ready? If you hit too many bumps early in your road trip, your car might not be able to get you through your journey. Likewise, if you experience a recession at the start of your retirement, the combination of a market decline and the income you’re withdrawing could drive your investment balance down. Even when the market recovers, your investment balance may not be able to fully recover and continue to send you income.
When you’re on a road trip, it’s easy to stop at a gas station to refill your car. But in retirement, there aren’t refilling stations for your investments. There are going to be times when you’re not feeling as confident in your route, and you’ll be tempted to panic or change direction along the way.
In retirement, there could be market conditions that challenge your confidence in your investment strategy. But it can be dangerous to make investment decisions based on emotions. You might be tempted to panic when there are large market swings, but whether the market is soaring or dropping, staying on course may be your best option to get the results you need for a long, secure retirement. And finally, while you may not be able to predict all of the road hazards you’ll run into, you can prepare for them with car insurance or roadside assistance. Likewise, you won’t be able to predict your long-term health, so you want your retirement income plan to anticipate and be ready for unexpected health care costs.
With all these potential risks, you can see how important it is to have an income plan—a map that can guide you safely through your retirement journey. Income Conductor acts as your retirement GPS, providing you with a detailed plan that breaks your trip into manageable sections and keeps you on the right path. Income Conductor segments your money to meet your short-, medium-, and long-term income needs.
Your savings are assigned across segments and invested over different time horizons. Because everybody’s journey is different, the amount of assets invested into each segment is customized based on your unique plan. Each segment is designed to deliver income over a different period during retirement.
Segment one delivers income for the first few years of retirement and is designed to have no stock market exposure. This means that your income for that period will not be affected by fluctuations in the market. After you spend the money in the first segment, the next segment’s assets are moved out of the market and into very safe options, becoming your new income segment.
Each segment will then transition to become your retirement income when the prior income segment is spent. Money you won’t need for 15, 20, or 30 years can be invested in more aggressive options. You can keep those assets invested in the market without worrying about needing to draw income from them in the near future.
Ups and downs in the stock market will only affect the longer-term segments that you won’t be tapping for years. These long-term segments will have time to potentially recover from market declines along the way. With Income Conductor, you’ll get a fully customized retirement income plan with full transparency.
And it’s not a static plan. It’s as flexible as your phone’s GPS, which updates your map whenever traffic or road conditions change. In the same way, Income Conductor can help you respond to changing conditions in your life, whether that’s a new grandchild to plan for, a hobby you want to take up, or a health issue that needs attention.
With Income Conductor, you and your advisor can modify your income plan to adapt to these changing conditions, and you’ll always have easy-to-understand reporting that illustrates how your plan is performing now and over time. Income Conductor is monitoring your plan every day. Its tracking dashboard shows how your plan is progressing and calculates the real-time effects of any changes being considered.
And your advisor can monitor your investments to make sure your plan stays on track. Because Income Conductor is watching your plan 24/7, your advisor will be alerted to potential opportunities to reduce risk in your investments, keeping you on track while protecting your future income. With Income Conductor, you can be confident in your journey because you’ll receive a written, customized plan, personalized investments, the ability to adapt to changes based on concrete data, and clear, transparent reports.
What’s just as important is that, with Income Conductor, you can feel confident about not overspending or being afraid to spend. And that means you really can relax and enjoy your retirement. Ask your advisor about how Income Conductor can help you create the retirement you deserve.