May 30, 2023

The Retirement Buckets Strategy Could Be What You Need... | Retirement Planning

Published May 26, 2023, 7:20 p.m. by Arrik Motley

For many people, retirement planning is something that they don’t start thinking about until they are well into their careers. By then, it’s often too late to save enough to enjoy a comfortable retirement. That’s why it’s important to start thinking about retirement as early as possible.

One retirement strategy that can be helpful is the “retirement buckets” strategy. This strategy involves saving for retirement in different accounts, each with a different purpose.

The first “bucket” is for immediate expenses. This account should have enough money to cover expenses for the first few years of retirement.

The second “bucket” is for long-term expenses. This account should have enough money to cover expenses for 10-20 years.

The third “bucket” is for legacy expenses. This account can be used to leave a financial legacy for your children or grandchildren.

The retirement buckets strategy can be a helpful way to save for retirement. It can also be a good way to make sure that your money lasts as long as you need it to.

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assuming yoga retired tomorrow what

should you do with your cash power that

is saved up over these years of work

today I'll be showing you this method

called retirement buckets and in this

method it should hopefully answer should

you buy bonds you buy equities how

should you deploy them so you can you

know get your money's beating inflation

as well as we have sufficient enough for

your day-to-day expenses during your

retirement years so if you're curious to

find out and you want to get yourself

ready continue watching on

hi guys welcome back without further Ado

let me explore with you this retirement

bucket method that was first developed

by wealth manager Harold avinsky in

1985. the strategy began as a simple Now

versus later approach whereby you

segregate this retirement savings pool

that you have into something you need to

consume now now as in zero to five years

later and then subsequently five years

and above in your entire retirement

period this whole approach really gives

you the clarity how you should deploy

the money the zero to five years first

bucket let's call it cash bucket this

one you put it very safe assets fixed

deposits bank account get interest with

it will do expense out for this bucket

for the next five years that bucket B

this is called the equity allocation

bucket where you invest it get it to

compound at the rate of return that is

higher than inflation I think this

five-year theory has a lot of logic

because if you do in terms of equity

markets S P 500 you will realize that

hey markets go up and down correct so

every five years you can kind of survive

even a down period if you look back in

terms of History this period was about

five years and the next one is also

about five years this time around SMP

version has been bearish for one year

plus it seems to be on the uptick but

even if it isn't I think a five-year

window definitely gives you a best

chance to ride out this entire wave then

what about for Singapore index you will

realize that I've drawn on over here

some brown swings correct every five

year period you can kind of make it to a

positive ground already even though

there's some crisis that happens within

that window itself this is proof that

markets go in cycles and when there's a

down cycle the best thing that you could

do quite possibly is just to hold it but

take it back as a retiree no active

income Source it's quite scary to ride

through Market dollars you know when we

are still working in 30s 20s that's

still a long time Horizon so that fear

we cannot quite appreciate but when I

speak to older retiree clients I do

realize that preserving wealth is very

important to them in practice it's not

so easy to just not cut off losses when

you see bad performance in the equity

portfolio so with that I would like to

throw a quick first suggestion on what

to do especially for this Equity air

location bucket my suggestion is to be

broad based don't pick individual stocks

lean more towards funds at gifts that

are Diversified because recovery as I've

shown you is more than a certainty if we

see individual stocks let's use three of

Singapore's Blue Chips first is

Capricorn second is DBS and third is

singtel I put them up to show you a row

of difference DBS is that golden line

over there correct it's doubled in the

last 15 years but what we can see is

that singtel has done mixed to nothing

over the last 15 years share price went

up but right now it's back to a price

rise 15 years ago Capital Corp on the

other hand has declined over the last 15

years in the five-year window you will

realize that it's not too easy to pick

stocks that actually did not decline

even though these three names are all

blue chip so the second suggestion on

how you can understand to cut losses

wrongly during bad Market periods is to

educate yourself properly about Market

volatility not Market noise Market

validity study not news because many

retirees have time they flip open

newspaper they read news of the phone

and they start to hear noise such as our

Chinese gonna attack Taiwan very soon

but if you spend time to study history

instead and be very familiar that

markets have even survived World War II

before you will realize that there's

always a lot of negative news a day may

not correlate to what's going to happen

in stock market in the possible months

ahead the third way to help yourself

practice proper Investments and not cut

losses wrongly when you are retiring

having Equity portfolio is to think

about the worst case situation first

listen to your gut feeling in terms of

your risk appetite what has been your

investment Journey along these years

because techno if you have one million

dollars in this market situation if your

expenses are fifty thousand dollars a

year that means only 250 000 is going to

the First Cash market and 750 000 is

invested into the equity bucket when the

portfolio is large a 30 drop would

naturally mean a 250 000 paper loss in

your second bucket think very carefully

whether you're comfortable with it

because again there's no best number

that you should towards each bucket the

reason why I presented this first is

because currently cash buckets are able

to produce a interest rate that's

significantly better than many times in

the past 10 years right now cash fixed

deposits Singapore savings bond tpus are

producing three percent or even slightly

more than that but think about a future

whereby interest rates go back down

again this cash Market if it gives you

only 0.5 percent it's not gonna work too

well again correct that's why let's

evolve this to something more

encompassing which is this risk-based

approach of retirement buckets in this

situation three buckets are created

instead of just two which is cash and

Equity right now there's a cash bucket

that is for three-year Horizon only your

expenses for next three years and a

defensive allocation bucket finally the

equity bucket is on the far right the

defensive bucket should be for expenses

after the first three years which means

you should have a three to seven year

time Horizon in this defensive market

and and what instruments can be invested

with this they should include short-term

bonds endowment plans possibly and high

U bonds so it should be things that can

give you about three percent even if

interest rates go back down then the

accurate Market again is there and its

focus again is to bring in Equity Funds

or stocks and in this market it's quite

natural to expect six to ten percent in

terms of performance which means to grow

it above inflation rate now in this

concept what you want is to spend the

First Cash Market correct and then

assets in the second bucket will be sold

out to replenish the first bucket which

is cash when it's used up and conversely

the third Market Equity is sold out to

move assets into the defensive

allocation second Bucket over time money

is used from the first bucket and slowly

flows from the third to Second and

second to First every project was left

at the end of your life it's quite

possibly left with the first and second

bucket only but wait you'll be thinking

of this question then isn't it directly

transferring from bucket 3 which is

equity allocation bucket one if every

time we use bucket one we fill it up

with bucket 2 and then bucket 3 throws

down also the answer is actually no

because there's a timing issue

theoretically if Equity markets are

doing well and there's a profit bucket

tree yes some money can surely pull out

from bucket 3 to be used instead of

using bucket one which is the cash

Holdings conversely if equipment markets

are bad that's why you want to just

consume bucket one and not touch bucket

three first until recovers so this side

steps in theory the sequence of

consumption risks when Equity markets

are down you don't consume from there

it's kind of a cash buffer and on top of

that you even have a defensive buffer so

if it makes sense to here already smash

the like button and as always leave your

questions in the comment sections below

let's move on to the next question that

we have 50 000 annual expenses I'll put

150 000 in first bucket then what should

I do with bucket two and three how much

should I put exactly into them now some

suggest to use your wrist appetite if

your balance risk they use 50 50 50 to

defensive allocation bucket 50 into the

equity allocation okay some feel that

you should put maybe four years into the

defensive allocation market and the rest

into equity and that could become quite

aggressive as when your cash savings is

quite big while it's good also because

the equity allocation bucket should grow

the fastest that may also cause

sleepless nights if you are not properly

prepared not properly educated and

that's why I mentioned the previous

point to really educate yourself about

Market cycles and be very Zen about

negative market news then what about for

someone that's very conservative should

they put more 70 your defensive

allocation and then just 30 percent to

equity allocation bucket quite clearly

there's no one-size-fits all there are a

few calls to highlight however the first

is that it's good to dissect what we

should put into different time Horizons

but again for our Financial Freedom

figure that whole study also with a 60

40 Equity Bond allocated portfolio for a

portfolio be tested to survive 25 years

of yearly expense drawdown it's not

factored in when we think about this

bucket strategy then the second problem

again is how to decide which to drain

correct now this problem should be

highlighted because back in 2022 bonds

dropped and equities drop it's very

different from in 2008 where my boss

rallied while equities drop which means

also both the defensive bucket and the

equity buckets were both down so it's

hard to decide which to drain from the

the third problem is that shouldn't we

buy equities when equities drop that is

a good time to invest correct and is

there a way to do so because in this

method we're just filling up filling up

there's no way to capitalize on Mr

Market when he is giving you good deals

on the equity front let's start doing

this research my own personal

conclusions are that investment time

Horizon is less important than asset

allocation personally to me I've seen

many instances where investors think

that they have a seven ten year time

Horizon and when accurate markets are

down everything is thrown out window

everything becomes too conservative and

when acne boxes are high that's where

there's a bit of greed coming in

extracting a strong way of return a

birth what is inflation rate that's why

this is my suggestion and a simpler way

again to look at things back to the two

bucket strategy I'm suggesting this

template of three years of expenses just

in cash if I park into fixed D or single

savings bonds let's think back on the

world where interest rates are low gain

we don't want to have too much cash so

why whatever left after three years

should be invested in a mixed 60 40

bucket same as the way the study for

Financial Freedom was actually done this

negates against the defensive allocation

for three to seven years Horizon and

then the equity allocation which is

seven years time Horizon I think again

time Horizon is less important than

asset allocation which means in the 60

40 we stick to asset location of 60

equities 40 in bonds where equities go

up automatically the funds sells and

rebalances to buy more bonds and when

equities go down that Converse is done

bonds are actually used to buy equities

I think Auto rebalancing is very

important and it will in my opinion

deliver the necessary results to give

your outcome that's not too volatile

that's 100 agreed this and then also an

automatic method to sell with equities

when it's on a high so company I've

actually two suggestions to start things

rolling the first is size core growth

portfolio this over here is 68.4 in

equities 25.8 bonds and 5.8 in

Commodities I think this is something

that's unique and you can see the

breakdown in terms of ETFs of its

Holdings this portfolio is global and

slightly more in equities so if you're

new to Scythe you can actually check out

my links below referral code AS tube

parent for a fee waiver terms and

conditions apply this is the back tested

result make sure as always it fits your

receptor type make sure you invest a

model that is comfortable with you the

next suggestion is a fund that has been

on the market for a very long period of

time and I've seen many of my fellow

advisors use it to build Christ's

retirement portfolios this is the first

Central Bridge fund that was first set

up in July 2003 you would realize over

here that since Inception the

performance is 6.1 percent annualized

this is the 10-year performance of this

fund you realize that at some periods it

was doing very good single digit returns

of six to eight percent but for last

three years things hasn't been too good

because its allocations again in China

Hong Kong and Taiwan which brings back

our story if we put three years in the

cash Market someone who is invested in

2001 will be quite close to drawing down

everything from the cash Market already

because the discipline is not touch the

software is down unless the cash bucket

is dried already and the cash Market is

drying up quite fast unfortunately but I

do believe that over the long Horizon

this still has a better chance of

beating inflation than holding

everything in cash this is just a

three-year bad period so saying always

goes after good periods there are bad

periods after bad periods it's good

periods again so it's actually fine to

stick to the plan thank you for watching

do here as always smash the like special

subscribe because this is the first part

to this whole retirement bucket Series

in the next episode I'll be expanding

the topic of retirement buckets against

expenses everything we've talked so far

is either time horizon or asset

allocation how much do you exactly need

to park inside to each of these buckets

to make sure you have enough first

there's something to answer in the next

discussion so as always stay tuned for

it and thank you again for watching to

the very end and without like the invite

all my privilege to talk about touch on

the top eight funds they can invest for

Lifetime if you haven't seen it check

that out I think is some surprising

names inside also it does sound obvious

you there too take as always goodbye

thank you


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