Retirement Withdrawal Bucket Strategy: How It Works

Planning your income in retirement can feel overwhelming, but a Retirement Withdrawal Bucket Strategy can bring clarity and structure to the process. This strategy helps you organize your assets by time horizon—balancing short-term cash needs with long-term growth—so you can weather market volatility and maintain steady withdrawals. In this article, we’ll break down how the strategy works and how to apply it to your own retirement plan.

What is a Retirement Withdrawal Bucket Strategy?

The Retirement Withdrawal Bucket Strategy helps retirees manage their income by breaking down their portfolio into time-based segments.

Maybe you’ve heard the term “bucket strategy” before. Maybe you already know a little bit about how it works, or maybe it’s a brand-new concept. Either way, the way I’m going to outline it here will lay out some rules and ways you should be thinking about your bucket strategy as you go through retirement.

We’ll talk about how to manage that retirement bucket strategy, when to refill the buckets, and more.

So what is the bucket strategy?

The bucket strategy is a way to separate some of your financial assets and prepare for when you’re going to start needing money out of your retirement portfolio to cover those cash flow gaps.

Rule #1: Know What Your Gaps Are

This is something I’ve talked about in many other articles. It’s something we do with our comprehensive financial plans and in our Retirement Time Machine program—where we build out a full roadmap showing what your retirement is going to look like, what money’s coming in, what the gaps are, and what taxes you’re going to have to pay.

You need to have a map.

One thing people may not realize as they go into retirement is that their cash flow gaps are going to change—sometimes very significantly—as they go through different phases.

If you’re retiring early:

You might not be eligible for Social Security yet.

You could have higher healthcare expenses before Medicare kicks in.

You might still be paying a mortgage or have kids at home.

And in many cases, people spend more money early in retirement because they’re younger, healthier, and want to travel more.

So understanding those gaps—and knowing they will likely change—is critical.

A Quick Note on the 4% Rule

Something I’ve talked about before is using the 4% rule as a guideline.

Whatever your portfolio value is—whether it’s $1 million, $2 million, or $5 million—you want to try to limit withdrawals to 4% or less per year.
If you start withdrawing more than 4%, it gets much harder to make that money last.

But: In early retirement, when gaps are bigger, sometimes you do violate the 4% rule temporarily. And that’s okay—as long as you plan for it.

I often recommend separating retirement into two phases:

Early retirement (when expenses may be higher and income is lower)

Post full-retirement age (when Social Security kicks in and expenses stabilize)

You want to project your gaps for both phases.
For example:

If you retire at 60 and have no Social Security yet, calculate what you’ll need for those first 7 years.

If you need $800,000 total to fund that gap, you might want to have that money set aside and invested conservatively.

Then, by full retirement age (say, 67), you need enough left to maintain that 4% withdrawal rate for the rest of your retirement.

Why the Bucket Strategy Matters: Sequencing of Returns

When you’re still working and investing, it’s the average returns that matter most.

But once you start withdrawing money, it’s the sequence of returns that matters.
If you hit a market downturn early in retirement, it can be devastating—and you might never fully recover.

That’s what the bucket strategy helps protect against.

Historical example:

The tech bubble (2000–2003) — market dropped by about 50%.

After recovering by 2008, the Great Financial Crisis hit—another 57% drop.

It wasn’t until 2013 that markets fully recovered to 2000 levels.

If you retired during that time without a buffer, it would have been very difficult.

Building Your Retirement Withdrawal Bucket Strategy

Here’s how I recommend setting up your buckets:

Bucket #1: Immediate Needs (2 Years)

About two years of anticipated retirement cash flow needs
Very conservative: money market funds, savings accounts, short-term CDs, Treasuries
Very liquid and very safe

Bucket #2: Short-Term Growth (5 Years)

About five years of retirement cash flow needs
Slightly less liquid, but still very safe
CD ladders, short-term bond funds

Bucket #3: Long-Term Growth

The remainder of your portfolio
Invested for growth to keep up with inflation: stocks, diversified funds, dividend-paying stocks

Managing Your Retirement Withdrawal Bucket Strategy

One mistake people make is thinking, “Okay, I’ve got seven years set aside. I’ll just wait until it runs out to refill.”

Wrong.

You want to keep Bucket #1 and Bucket #2 topped off continuously.

At least once a year—maybe even twice a year—you should:

Refill Bucket #1 and Bucket #2 using gains from Bucket #3 when the market is doing well.
Don’t wait for a crash to think about it.

This way, when the next downturn happens, you have a full seven years to ride it out without needing to sell investments at a loss.

A Few Final Thoughts

The bucket strategy isn’t going to eliminate all risk.
There’s no perfect way to protect against a major, prolonged downturn.

But having a plan like this gives you a real buffer—and it can help you retire with more confidence, knowing you have time to weather market storms.

If you’re a more conservative investor, you might even want to build in more than seven years of safe cash flow.

Or you might invest the growth bucket a little more conservatively—maybe a 60/40 or 70/30 stock-to-bond split—depending on your risk tolerance.

Learn More

If you’d like help building your retirement plan or setting up your own withdrawal strategy, check out moneyevolution.com.

We’re building a full financial education hub with free tools, guides, and programs like the Retirement Time Machine to help you get started.

Also, don’t forget to like and subscribe to our YouTube channel — we’re posting new videos every week on retirement planning, tax strategies, and financial education.

Disclosure:

This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.

All investing involves risk including loss of principal. No strategy assures success or protects against loss. CDs are FDIC insured to specific limits and offer a fixed rate of return if held to maturity, whereas investing in securities is subject to market risk including loss of principal.

Government bonds and Treasury bills are guaranteed by the US government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.

Stock investing includes risks, including fluctuating prices and loss of principal. Bonds are subject to market and interest rate risk if sold prior to maturity.

Bond values will decline as interest rates rise and bonds are subject to availability and change in price