The “bucket” savings strategy has been gaining traction in recent years, but is it right for you? The idea is simple: have three “buckets” of money where you save – one for now, one for soon, and one for later. Assets are then allocated to the buckets to help generate income before and during retirement. This holistic plan can take on today’s market challenges, while also meeting your immediate, short-term, and long-term needs. Below is one reason for – and against – having a bucket savings strategy.
PRO: It allows you to tap your assets, while still generating portfolio growth. Bucket strategies allow you to tap low-yield investments such as bonds without touching your stocks. That means you can stay invested in the stocks long-term and avoid reacting to gains or losses in the short-term. Plus, having liquid assets in a money market or savings account can delay the point where you need to dip into your retirement savings. Essentially, the longer you can live off of funds in “bucket one”, the longer your assets can grow.
CON: You must be disciplined about generating a set return. When your strategy looks to allocation instead of performance, you’ll have to pay close attention to how their buckets are structured – so you’re able to reach your necessary rate-of-return to meet your retirement goals. A bucket savings strategy can’t be “set-it-and-forget-it”; but instead must always carefully manage each bucket, rebalancing often to help offset risk.
Please note that a bucket savings strategy is not for every situation. If you’re thinking of bettering your own strategy, give us a call and we’ll assist you in making the right decisions for your situation.
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