Examining a Popular Retirement Income Strategy
Will the Buckets Hold?
By Jared Prazen | Secure Retirement Planners
If you’ve talked with a few financial planners about retirement income, there’s a good chance one of them has shown you something they referred to as a "bucket strategy". It’s one of the most popular ways to explain a retirement plan, and it’s easy to see why.
In this video, we walk through how buckets work, what they get right, and what happened when we put a typical bucket plan through 26 years of real market history.
How the bucket strategy works
A typical bucket plan splits your savings three ways: about a year of spending in cash (bucket 1), five to eight years of spending mostly in bonds (bucket 2), and everything else mostly in stocks (bucket 3). You spend from bucket 1, refill it from the others, and try never to sell stocks while the market is down.
To be fair, buckets get some things right. They give you a clear spending plan, they make a downturn easier to sit through, and “now, soon and later” is a simple way to think about money. Even the strategy’s leading advocates say its main benefit is peace of mind, not better results.
Where buckets fall short
For a buy-and-hold portfolio, the honest answer is the same every time: stay invested and wait for the recovery. Here's why that matters more once you're retired.
It’s the same portfolio with different labels. A $1 million plan with one year in cash and seven years in bonds is simply about 68% stocks and 32% bonds and cash. The buckets change how the money feels, not what you own.
The refill dilemma. Refill bucket 2 after any up year, and you sell stocks while they’re still down: after the 2000–2002 crash, stocks were still about 20% below their peak after their first up year. Wait for a full recovery, and roughly eight years of safe money may run low first, since some recoveries have taken 12 years or more in buying power.
The “safe” bucket isn’t guaranteed. In 2022, stocks fell about 18% and the broad bond market fell about 13% in the same year.
The research isn’t kind to buckets. One study of U.S. market history from 1900 to 2014 found that a simple 60/40 mix never ran out of money, while the bucket strategies tested ran out 3.5% to 4.7% of the time.
Put to the test: retiring in 2000
We ran a hypothetical 65-year-old through actual market returns from 2000 to 2025: $1 million, $40,000 a year to start (4%), raised every year for inflation:
| Approach | Still invested at the end of 2025 | Contractual income still coming |
|---|---|---|
| Buckets, refilled after any up year | about $76,000 | None |
| Buckets, refilled after a full recovery only | about $397,000 | None |
| Same mix, simply rebalanced | about $908,000 | None |
| Income floor first | about $1,960,000 | $40,000 a year for life |
Why did the bucket plans fall so far behind? Every refill moved money out of stocks, and it never moved back. By 2020, one bucket plan had nothing left in stocks at all, just before one of the strongest markets in history.
The income-floor version used $500,000 to buy about $40,000 a year of lifetime income, at today’s payout rates, and left the other $500,000 invested to cover the rising cost of living. During the 2000–2002 crash, the invested money only had to supply about $1,400 to $2,000 a year, so there was almost nothing to sell at the bottom. At a 5% starting withdrawal, every portfolio-only version ran out of money between ages 85 and 89, while the income-floor version still had about $960,000 invested.
Buckets buy time. A contract can buy income for life.
Most bucket plans, whatever’s inside them, buy a set number of years. The real question is what pays the bills after that. When essential expenses are covered by Social Security plus contractual lifetime income, a long downturn doesn’t force a decision about when to sell, and income continues for as long as you live. Because lifetime income usually pays a level amount, the invested money has its own job: keeping up with inflation and paying for the extras. And buy-and-hold isn’t the only way to manage that money.
Questions to ask about the bucket plan
How many years do the safe buckets cover, and what if a downturn lasts longer?
What exactly triggers a refill, and who decides?
How will my stock allocation change as the buckets get refilled?
What happens if bonds fall at the same time as stocks?
Where does my income come from if I live to 95?
How much of my essential income is contractually guaranteed for life?
Another question worth asking
If your buckets ran low, in a long downturn or a long life, what would pay the bills? If you’re not sure, that’s exactly the conversation we have with every family we work with.
Keep watching: Here's our take on a popular annuity Roth conversion pitch:
About the author:
Jared Prazen is a financial advisor with Secure Retirement Planners, focused on retirement income planning for people approaching or already in retirement. He helps families build plans that cover their essential expenses with predictable income, so the rest of their money can be managed with a clear plan.
Hypothetical illustration for discussion only; not any actual account. Market simulation uses calendar-year S&P 500 total returns, the Bloomberg U.S. Aggregate Bond Index, 3-month Treasury bills and CPI, 2000–2025, with no fees or taxes. Bucket plans start at 4% cash, 28% bonds and 68% stocks and refill to 1 year of cash and 7 years of bonds. The income-floor example applies today’s approximate 8% lifetime payout for a 65-year-old male, level, single life, no death benefit; such rates were not available in 2000. Research: Javier Estrada, “The Bucket Approach for Retirement: A Suboptimal Behavioral Trick?” (2018). Recovery times: StatOasis, from Robert Shiller’s data. Lifetime income guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company; annuities have fees, surrender charges and limitations. Indexes are unmanaged and cannot be invested in directly. Past performance does not guarantee future results. No investment strategy can ensure a profit or guarantee against losses. Investment advisory services offered through StrongHold Capital Partners, a Registered Investment Advisor.
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This material is provided for educational purposes only and does not constitute individualized financial, legal, or tax advice. Investment strategies involve risk, including possible loss of principal. Availability of strategies depends on individual suitability and applicable regulations. Insurance products, if applicable, are issued by properly licensed insurance companies. Guarantees are based on the claims-paying ability of the issuing insurer.