Retirement Planning: What are Retirement Buckets?

Daniel Penzing
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How Do Buckets Work?

The idea of retirement buckets was introduced in 1991 by financial planner Roger Gibson, who is now deceased. Along with a handful of other financial planners, Gibson outlined the concept of retirement buckets as a way of planning for retirement.

If you have ever gone to the beach, you’re familiar with the concept of buckets. If you went to the beach with family or friends in a group, you would all have probably brought one or two beach buckets.

When you are all done playing in the water, you take your wet sandy towel and throw it into a wet bucket. It doesn’t matter where you put it. You know that you will use it later to dry off.

In the same way, you can use retirement buckets to divide your retirement income. It’s a concept that is easy to understand, and you’ll likely wonder why you never considered it before.

Back in 1991, Gibson defined three different retirement buckets. You can adjust them to your own preference, but they are as follows.

Understanding Your Investment Goals

Retirement is it’s just one of those things that you have to get right. No retirement, or a retirement that’s not as good as you’d hoped, is something nobody wants to deal with. It’s very much something you can plan for, but it’s also fairly complex.

There are a bunch of different options and things to think about when it comes to planning for retirement. Things can get pretty confusing though so a great starting point is working out what you want to try and achieve with your retirement. Things to think about include:

  • What retirement activities do you want to do?
  • What kind of lifestyle do you want (i.e. board game nights, spending time with the grandchildren etc) ?"
  • How long you want to live?
  • You still need income. What will it come from?

If you consider what you want from your retirement, you can then work out the investment(s) that you need to make to give you a better chance of achieving those things. How much is the big question!

Answering this involves having a clear understanding of a few key things to do with your investments. What you want your investment to do, how long you want it to last and your tolerance for risk. "