RETIREMENT
How the Bucket Strategy Can Help Manage Retirement Withdrawals
From the Book
Two-Comma Wealth: Investment, Tax, and Estate Strategies to Consider When Your Net Worth Exceeds a Million Dollars
By George Stefanou, CFP®, CPWA®, CEPA®
Chapter: Chapter 3: Assess for Success; related SWIM Lesson in Chapter 4
Section: Bob: Negative Returns Early (Bucket Strategy); SWIM Lesson: Use the Bucket Strategy for Retirement Planning
Excerpted from Two-Comma Wealth: Investment, Tax, and Estate Strategies to Consider When Your Net Worth Exceeds a Million Dollars, published April 15, 2025.
The planning principles discussed here are intended to be enduring, but tax laws, retirement rules, Medicare thresholds, estate and business laws, investment conditions, and other regulations can change over time. Any specific thresholds, limits, ages, tax brackets, or regulatory references should be understood in the context of the book’s publication date and verified against current rules before being applied. Ellipses indicate where portions of the original text have been omitted for length, relevance, or durability. This material is for educational purposes and is not individualized investment, tax, legal, insurance, Medicare, valuation, or transaction advice.
“Another strategy Bob could use is the bucket strategy, which divides his assets into three distinct categories based on time horizon:
• BUCKET 1: Cash Reserve—$80,000 for two years of withdrawals, allowing him to avoid selling investments during market downturns.
• BUCKET 2: Bonds—$300,000 invested in bonds generating 4 percent annually to cover medium-term expenses.
• BUCKET 3: Stocks—The remaining $620,000 is invested in stocks for long-term growth.”
Hypothetical illustration from Two-Comma Wealth; not actual investment performance. Results are based on the assumptions shown and are not a prediction of future outcomes.
| Year | Stock Return | Withdrawal | Portfolio Value End |
|---|---|---|---|
| 1 | -15% | $40,000 | $879,000 |
| 2 | -10% | $41,200 | $797,580 |
| 3 | +12% | $42,436 | $823,342 |
| 4 | +8% | $43,709 | $832,115 |
| 5 | +20% | $45,020 | $910,420 |
| 6 | +15% | $46,371 | $974,389 |
| 7 | +10% | $47,761 | $1,011,244 |
| 8 | +12% | $49,195 | $1,070,251 |
| 9 | -5% | $50,671 | $972,625 |
| 10 | +6% | $52,191 | $975,832 |
Total Withdrawn: $458,554 | Portfolio Value after Ten Years: $975,832
“The bucket strategy protects Bob from having to sell stocks in down markets, allowing time for his investments to recover. His portfolio remains relatively strong, and his withdrawals remain consistent.
[...]
Bob’s dynamic withdrawal strategy results in a higher ending portfolio balance than the fixed withdrawal and bucket strategies. However, the bucket strategy provides more consistent withdrawals while protecting the portfolio during down markets. Both strategies demonstrate how adjusting withdrawals or employing a structured approach can mitigate the negative effects of poor market returns early in retirement.
[...]
Lastly, we have Bob’s bucket strategy, which breaks his portfolio into short-term cash, medium-term bonds, and long-term stocks. This approach is a great way to keep the money he needs in the near future safe while giving his long-term investments time to grow. Over the ten years, he withdraws the same amount as in the fixed strategy, but because he pulls from safer investments in the down years, his stock investments have time to recover. At the end of ten years, Bob’s portfolio balance is $975,832—lower than with the dynamic strategy but still quite healthy. This method requires a bit more planning upfront, but it provides peace of mind. You don’t have to worry about selling stocks at the wrong time because you’ve already set aside the funds you’ll need in the next few years. If you prefer a structured approach and don’t want to adjust your spending year to year, the bucket strategy can offer stability.
[...]
In the end, there’s no single solution that works perfectly for everyone in every scenario. Each strategy has its strengths and trade-offs, and the right choice depends on how comfortable you are with market fluctuations and how flexible you can be with your spending.”
“Dividing your assets into buckets for short-term needs, medium-term income, and long-term growth helps manage market fluctuations and maintain financial stability in retirement.”
Continue Exploring
Sequence-of-Returns Risk - Why the order of investment returns matters once withdrawals begin.
The Investment Highway - How cash, income, and growth investments can serve different time horizons.
Preserving Wealth Through Diversification - How diversification and rebalancing can support a long-term retirement plan.
About George Stefanou, CFP®, CPWA®, CEPA®
George Stefanou is the author of Two-Comma Wealth and founder of Stefanou Wealth Management. A financial advisor since 2009, he helps families navigate investment strategy, retirement income, tax considerations, and estate and legacy planning. Through his writing, George helps readers make more informed decisions about preserving, using, and transferring the wealth they have worked hard to build.