The Bucket Strategy

Hold your spending in buckets by time horizon, so you never sell growth assets in a slump. (Harold Evensky's bucket approach.)

Sequence-of-returns risk is dangerous because a fall early in retirement can force you to sell shares while they are down. The bucket strategy is a simple, practical defence: divide your money by when you will need it.

The cash bucket holds one to two years of spending in deposits and Treasury bills — safe, ready, untouched by markets. The income bucket holds the next several years in bonds and stable income. The growth bucket holds the long-term money in diversified shares, left to compound.

You spend from cash. In good years you top the cash bucket back up from the others; in bad years you leave the growth bucket alone and let it recover. The buckets do not change your total return by much — their work is behavioural. They let you ride out a downturn without selling at the bottom, and they turn an abstract portfolio into an easy rule you can actually follow.

Illustrative example: three buckets, three jobs

The chart shows the buckets and what each is for. Match each to its time horizon, spend from the near end, and refill from the far end as markets allow. The point is not clever investing; it is never being a forced seller.