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4 mins readThe Three-Bucket Strategy to Address Changing Financial Needs Throughout Retirement
Securing a worry-free retirement involves more than just accumulating wealth; it requires a strategic approach to withdrawing and managing savings throughout your golden years. Financial expert Harold Evensky's "Three-Bucket Strategy" offers retirees a sophisticated method to diversify funds and adapt to changing financial needs. By allocating resources across short-term, medium-term, and long-term horizons, this strategy provides financial stability even amidst market volatility.
What is the Three-Bucket Strategy?
This approach divides retirement savings into three distinct categories based on time horizons:
Bucket 1: Short-term funds (1-2 years of living expenses)
Bucket 2: Medium-term funds (3-10 years of financial needs)
Bucket 3: Long-term funds (11+ years into the future)
This layered management system organizes retirement funds systematically while mitigating the impact of market fluctuations.
| Buckets | Purpose | Asset Allocation |
| Bucket 1: Immediate Living Expenses |
To cover daily essentials such as food, transportation, and leisure activities, typically comprising about 10% of retirement funds. | Focus on highly liquid, low-risk assets like bank deposits, short-term bonds, or money market funds to ensure readily available cash without compromising daily living standards. |
| Bucket 2: Medium-Term Retirement Needs |
To address medium term financial needs, accounting for approximately 40% of retirement funds. | Opt for investments with stable returns, such as investment-grade bonds, fixed-income funds, ETFs, or dividend-paying stocks. This approach aims to achieve steady growth while preserving capital. |
| Bucket 3: Long-Term Needs and Healthcare Expenses |
To prepare for future significant expenses and potential medical costs, especially in later retirement stages. This typically represents about 50% of retirement funds. | Consider moderately aggressive investments such as global equity funds or ETFs. The primary goal is to achieve long-term growth, offsetting inflation and potential increases in healthcare costs. |
The Three-Bucket Strategy offers a balanced approach to retirement financial planning, harmonizing stability with growth potential. It allows for flexible fund allocation to address the diverse needs of different retirement phases. For those yet to embark on their retirement planning journey, this strategy provides a robust framework for building a secure and worry-free retirement.
Disclaimer: The information, data, and documents provided on this website are for general reference purposes only and should be used as self-help tools. Investment involves risks, and unit prices may fluctuate. Past performance figures shown are not indicative of future performance. BestServe Financial Limited and its content providers are not responsible for any loss or damage caused by reliance on any information or advice made in this website.
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