Joe and Lindsay conclude their RISA framework series with a look at the final quadrant: time segmentation. It is also known as the "bucket strategy" in retirement planning. Joe explains how this approach divides retirement assets into short-term, mid-term, and long-term buckets, allowing for a balanced retirement income strategy. Retirees can reduce anxiety from market fluctuations by segmenting assets while still achieving growth over time. Joe and Lindsay also discuss the pros and cons of the bucket strategy compared to the total return approach and suggest listeners take the RISA assessment to determine their best retirement income style.

What You’ll Learn in Today’s Episode

Overview of the Time Segmentation Quadrant: Joe explains the "bucket strategy," where retirement assets are divided into short-term, mid-term, and long-term buckets to align investments with spending needs.

 How the Bucket Strategy Reduces Anxiety: Segmenting assets allows retirees to cover short-term needs with low-risk investments, reducing stress from market fluctuations in their growth-focused, long-term buckets.

 Pros and Cons of the Bucket Strategy: They discuss the advantages of balancing immediate income needs with long-term growth and the complexity and additional monitoring required.

 Comparison to the Total Return Approach: Joe contrasts the bucket strategy with the total return approach, emphasizing how buckets can provide a behavioral benefit by offering peace of mind in volatile markets.

 Taking the RISA Assessment: Listeners are encouraged to take the RISA assessment to determine which retirement income strategy aligns best with their style and goals.

Ideas Worth Sharing

·       "The bucket strategy aligns your investments with your spending needs, reducing anxiety during market fluctuations."

·       "Segmenting retirement assets into short-, mid-, and long-term buckets lets you balance income with growth."

·       "This strategy isn't one-size-fits-all—find what fits your risk tolerance and comfort level."

·       "Buckets offer a powerful behavioral benefit, giving peace of mind when markets are down."

Resources

Joe Curry

Take the RISA HERE – Take the Retirement Income Style Awareness - a 15-minute assessment designed to help you more clearly understand which retirement income strategies align most closely with your preferences. 

Ep # 106 – Understanding Your Retirement Income Personality for Success with Wade Pfau

Ep # 111 – Flexibility or Security: Weighing the Pros and Cons of a Total Return Retirement

Ep # 112 – Too Risk Averse for the Market? Explore Income Protection Instead

Ep # 15: Retirement Income Bucket Strategies

Ep # 6 – Retirement Risk # 1 – Sequence of Returns and Why the Game Changes in Retirement

Guaranteed Minimum Withdrawal Benefit (GMWB) products – getsmartaboutmoney.ca

info@retirementplanningsimplified.ca

Understanding the Bucket Strategy for Retirement Income: A Q&A on the RISA Framework

What is the bucket strategy, and how does it work in retirement planning?

 The bucket strategy is a time-segmentation approach designed to organize retirement savings into “buckets” based on when the money will be needed. In this framework, retirement assets are divided into three main buckets:

- Short-Term Bucket: This includes cash and low-risk investments like GICs or short-term bonds, covering the next 2–5 years of expenses. The goal is to have funds readily available without being exposed to significant market risk. 

Mid-Term Bucket: This bucket is for assets needed in the next 5–10 years. Investments are typically moderate-risk options, like longer-term bonds or balanced funds, which provide a balance between growth and stability.

- Long-Term Bucket: This includes more growth-oriented assets like stocks or equity-based funds. Since this money won’t be needed for many years, it can ride out market fluctuations, aiming for higher returns over time.

The strategy allows retirees to prioritize short-term stability while still investing in growth for the long term.

 Why is the bucket strategy popular among retirees?

The bucket strategy especially appeals to retirees because it brings peace of mind. Here are a few reasons why this approach is so popular:

- Structure and Clarity: The bucket strategy aligns investments with spending needs, helping retirees see where their funds are and how they’ll be used over time. 

- Reduced Anxiety: Retirees can avoid selling investments when markets are down by placing essential funds in short-term, low-risk assets. Knowing their immediate needs are covered brings a sense of security during market downturns.

- Growth Potential: The long-term bucket remains invested in growth assets, helping retirees keep up with inflation and potentially extend the longevity of their funds.

This strategy is ideal for people who value a structured approach, prefer not to be overly conservative, and still want a safeguard against market volatility.

How does the bucket strategy compare to the total return approach?

The bucket strategy and total return approach both aim to generate income for retirees, but they do so in different ways:

- Total Return Approach: This method involves maintaining a diversified portfolio and drawing a fixed percentage of income annually. Rebalancing the portfolio ensures it stays aligned with the retiree’s goals and risk tolerance. It’s a simpler, more efficient approach but may cause concern during market fluctuations, as retirees may need to withdraw funds in a down market.

- Bucket Strategy: With separate buckets for different time horizons, retirees have specific funds allocated for short, mid, and long-term needs. This mental separation can ease anxiety, as there’s a clear distinction between liquid assets for immediate needs and growth assets for long-term goals.

While the total return approach may be more efficient and straightforward, the bucket strategy provides a behavioral benefit by allowing retirees to “mentally separate” their assets. This can make it easier to stick to their plan during volatile markets.

Are there any downsides to using the bucket strategy?

While the bucket strategy offers many benefits, it does have some potential drawbacks:

- Complexity in Setup and Management: Establishing and maintaining multiple buckets requires more attention. Each bucket may need to be rebalanced over time, especially if markets shift significantly. This management level can feel overwhelming, particularly for retirees handling their investments independently.

- Potential Inefficiencies: The bucket strategy may be slightly less efficient than a total return approach, which pools assets into a single, diversified portfolio. While the bucket strategy offers peace of mind, it may not maximize returns to the same degree if buckets are not rebalanced regularly.

Joe emphasizes that the bucket strategy is customizable. Retirees who feel overwhelmed can work with a financial advisor to manage bucket allocations and maintain the strategy’s balance over time.

Who is best suited for the bucket strategy, and how can they determine if it’s right for them?

The bucket strategy works well for retirees who appreciate a structured approach and prefer to keep some distance from market volatility. People who want more control over their short-term spending needs while still having long-term growth potential might find the bucket strategy a perfect fit.

Joe recommends the RISA assessment to determine if this approach is right for you. With different retirement income strategies, this tool helps retirees understand their risk tolerance, income needs, and comfort level. By taking the RISA assessment, individuals can understand whether a bucket strategy aligns with their personal style and financial goals.

What action steps can listeners take to implement the bucket strategy?

 Joe and Lindsay suggest the following steps for listeners interested in the bucket strategy:

1. Complete the RISA Assessment: Visit retirementplansimplified.ca or email info@retirementplansimplified.ca to request the assessment link. This will provide a personalized view of which retirement income strategy might suit you best.

 2. Consult with a Financial Planner: For those who find the bucket strategy appealing, a financial planner can help structure buckets and select investments that match your time horizons and goals.

 3. Regularly Review and Adjust: Market conditions and personal needs change over time, so regular reviews of bucket allocations and rebalancing are essential to maintaining the strategy’s effectiveness.

The bucket strategy, as explained by Joe and Lindsay, offers a balanced approach to retirement planning by reducing anxiety about short-term market volatility while allowing for growth in long-term investments. The RISA framework empowers retirees to choose a strategy that aligns with their unique needs and comfort levels. If the bucket strategy resonates with you, consider taking the RISA assessment and discussing your results with a qualified advisor to build a retirement income plan tailored just for you.