Why Critics of Bucketing Strategies are Wrong

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Advisors who reject bucketing strategies because they won’t invest as many as five years of assets in low-yielding securities are exposing clients to risks that threaten their standard of living in retirement.

One of the most often-heard criticisms of retirement income “bucketing” strategies expressed by advisors concerns the conservatively invested “bucket one.” The basis of their criticism centers on what amounts to the foundational construct of the bucketing strategy, which is to eliminate investment risk during the early years of the strategy. Detractors believe that allocating a fairly significant share of assets to low-yielding, safe-money investments causes the retiree to sacrifice growth potential that could lead to a larger retirement income.

Advisors who disparage bucket strategies based on this argument miss the “big picture” benefits of bucketing. Moreover, they overestimate the impact on the client’s initial monthly income due to assets invested at low rates of interest. And finally, they often fail to make a distinction between the differentiated planning needs of “overfunded” and “constrained” Investors.

Let me explain how all of this happens and what it means in practice.