How Millionaire Retirees Should Use the Bucket Strategy

You might think that if you’ve got a million or two saved for retirement, or maybe a lot more, the worries around retirement income would disappear. But in my experience, that’s not how it works.

I’ve found that the more someone has, the more pressure they feel to get it right. There’s more to protect, more complexity, and often more fear of making a mistake that can’t be undone.

Why the Bucket Strategy Matters

That is exactly why the bucket strategy is not just helpful for millionaire retirees—it’s essential.

Because when markets drop, taxes shift, or unexpected expenses come up, it’s not about whether you can afford it. It’s about whether your plan gives you:

• The confidence to spend
• The flexibility to adapt
• The peace of mind to sleep well at night

The bucket strategy, when done right, creates that peace of mind. It separates your short-term needs from your long-term growth. It helps you avoid costly decisions in stressful times. And most importantly, it gives your wealth a clear job to do.

So let’s break down how to do that, the right way.

After working with retirees for over two decades, I’ve noticed something that appears repeatedly. Regardless of one's financial situation, the feelings surrounding retirement are often the same.

One of the most common emotions I hear is fear. Spending your hard-earned savings can feel scary, especially when the market dips. That fear often turns into anxiety. People start questioning their plan and whether they’ll have enough.

The good news is, there is a way to reduce that anxiety.

A Different Take on the Bucket Strategy

Over the years, I’ve developed a different version of the bucket strategy. It’s not the traditional split of cash, bonds, and stocks. Instead, it’s a simplified approach, built from real-world experience, that focuses on what works.

It shares some similarities with what’s known as the barbell strategy. On one side, you have safety and stability. On the other side, you have growth. What it gives you in the middle is peace of mind. I like to call it a return on sleep.

Let me walk you through how it works and why I believe it is one of the best ways to approach retirement income, especially if you are a high-net-worth retiree.

Addressing the Sequence of Returns Risk

One of the biggest reasons this strategy works so well is that it directly addresses a major threat: sequence of returns risk. This is the danger of poor investment returns emerging at the worst possible time, such as when you’re starting to make withdrawals.

By setting aside five years of income in stable, fixed-income investments, you give your growth portfolio room to breathe. When the market drops, you draw from the spending bucket instead of selling stocks. That one move protects you from locking in losses.

I’ve seen this in action with hundreds of retirees. When the market gets rocky, having that spending bucket changes everything. It replaces anxiety with clarity. It replaces panic with a plan.

Start With a Real Retirement Income Plan

But before you can put this into motion, you need a solid foundation. That means building a retirement income plan that gives you the numbers, the structure, and the confidence to move forward. So let’s start there.

I don’t mean a stack of charts or a confusing software report that looks impressive but leaves you more confused than when you started. I’m talking about a retirement income plan that works in the real world. One that gives you clarity about how your income will flow, year by year.

A solid plan should answer:

• Where is your income coming from each year?
• What will your taxes look like?
• How does your portfolio shift over time?

You should be able to test different scenarios side by side. Maybe you want to test:

• Delaying Social Security
• Increasing travel spending early on
• A pension election
• A gifting strategy

A real plan lets you test those choices and see the long-term impact, visually and clearly.

For example, the plans we build for clients show each strategy on one simple line graph. You can see how the portfolio and tax burden play out under different options. It makes it easy to weigh trade-offs and choose the path that feels right for you.

And once you have that kind of clarity, you’re ready to take the next step. That’s when you calculate what your income needs will be for the next five years. That number becomes the starting point for your spending bucket.

Setting Up Your Spending Bucket

Once your plan is in place and you know exactly how much income you’ll need over the next five years, it’s time to set up your spending bucket.

This is the account or group of accounts that you’ll draw from during retirement. It’s where your monthly distributions come from. And the key to making this work is keeping it completely separate from your growth account.

You might label it something simple, like a Spending Account. That small mental shift can make a big difference. It creates a clear line between what you’ll spend and what you’re letting grow. That clarity, especially during market downturns, helps reduce anxiety. You know your short-term needs are already covered.

There are a few things you need to keep in mind when setting this up.

First, the account type matters. If you’re drawing from an IRA, then your spending bucket should also be inside an IRA. Moving that money into a taxable account could trigger unnecessary taxes. The same goes for taxable funds. Keep the account type consistent so you avoid surprises at tax time.

Second, this account shouldn’t just sit in cash. It should be invested in fixed-income securities that mature when you need the money. Think of it like a ladder of bonds or CDs. Each year, a portion comes due, giving you access to funds without worrying about market swings.

How the Growth Account Complements the Strategy

Next, let’s talk about the rest of the portfolio, the growth account. This is where you invest for the long term. Stocks, equity funds, maybe some alternatives if it fits your situation. This account stays invested and keeps working for you.

And here’s something important to remember. The amount you hold in your spending bucket, that five-year income buffer, should be the minimum amount of fixed income in your overall plan. If you’re more conservative, you can add more fixed income to the growth account. But that core five-year buffer is the baseline.

Only Refill in Good Years

Finally, you only refill the spending bucket in good years. When the market is up, you take gains and refill the bucket. If the market is down, you wait. That rule protects you from locking in losses and gives your investments time to recover.

When you separate your spending and growth accounts like this, you create a powerful system. One part gives you safety and income. The other part gives you long-term growth. And together, they give you something just as valuable—confidence, no matter what the market is doing.

Does it Work?

Now, you might be thinking, this all sounds good in theory, but does it really work?

The answer is yes. And the data backs it up.

A recent study by DALBAR looked at what they called the Prudent Asset Allocation strategy. Their version of the spending bucket strategy was compared to the traditional 60/40 portfolio, which they called Arbitrary Asset Allocation. And while their version has some small differences from the approach I use, the message is the same.

Between 2001 and 2020, the bucket strategy outperformed the 60/40 mix in 65 percent of single-year returns. Even more importantly, it came out ahead in 60 percent of rolling ten-year periods.

That’s not just a short-term win. That’s long-term consistency. And it highlights something important. Tailoring your portfolio to your actual spending needs, rather than sticking to arbitrary percentage splits, can make a meaningful difference.

One of the big reasons the bucket strategy performed so well is its ability to hold strong during market downturns. Over that twenty-year period, there were four years where returns were negative. In a 60/40 portfolio, you would often have to sell stocks to generate income or keep your allocation balanced. That means selling at a loss.

But with a spending bucket in place, retirees had a stable income source they could draw from while their stocks had time to recover.

The study also validated the five-year buffer. Historical data shows that even in severe downturns, markets tend to recover within five years. By setting that time aside in stable investments, retirees protect their long-term portfolio and their peace of mind.

Flexibility Is Key

Now, does this work for everyone?

I think it can, but the strategy needs to be flexible. Every retiree has a different risk tolerance and emotional comfort level. So while the five-year spending bucket might translate to 20 percent of the portfolio in fixed income, that doesn’t mean the other 80 percent has to be in stocks.

Let’s say a couple needs a four percent withdrawal rate. Using the five-year buffer, they set aside twenty percent of their portfolio in fixed income. But if they’re not comfortable with the remaining eighty percent in equities, we don’t throw out the strategy. We adjust it.

Maybe we hold some extra bonds or short-term investments inside the growth account. That way, the client still benefits from the structure of the bucket approach, but with a level of risk that feels right for them.

That’s the key. This approach can work for most retirees. But it has to be customized.

When you align your spending and growth buckets with both your financial needs and your emotional comfort, you end up with a strategy that is not only effective but also sustainable.

Takeaway 

Here’s the big takeaway. The traditional 60/40 allocation is fine as a starting point. It gives you a rough sense of balance. But it is not the only option. And for many people, it is not the best one.

The modified bucket strategy offers something better. It is flexible. It is backed by data. And most of all, it is designed for real life.

When you build a clear plan, set up your spending bucket, and tailor your growth investments to fit your comfort and goals, retirement becomes less about worry and more about confidence.

You can stop guessing and start enjoying it. Because with the right strategy in place, retirement can be exactly what you hoped and saved for.

If you're a millionaire retiree ready to take a closer look at your income strategy, schedule a free Retirement Clarity Meeting. It's a focused, one-on-one conversation about your goals, concerns, and what matters most. You’ll walk away with:

• Insight
• Direction
• A clear sense of whether this approach fits your retirement

Visit my website to schedule. I look forward to connecting with you.