Planning for retirement is a crucial step for anyone aiming for a financially secure and stress-free future. While saving up in your superannuation is a good start, managing that wealth during retirement requires a clear and sustainable strategy. One approach that’s gaining traction in Australia is the retirement income bucket strategy—a simple yet powerful way to manage your retirement nest egg, minimise risks, and ensure steady income throughout your golden years.

This article explores the concept of bucket strategies, their benefits, and how Australians can incorporate them into their retirement plans effectively.

 

What Are Retirement Income Bucket Strategies?

Retirement income bucket strategies are a framework for managing your retirement savings by dividing them into “buckets,” each tailored to different financial objectives. These buckets are typically categorised by the time horizon for spending:

1. Cash (Short-term bucket) – Covers immediate expenses (1–3 years).

1. Fixed Income (Mid-term bucket) – Designed to generate stable returns over a medium range (4–10 years).

1. Equities (Long-term bucket) – Focused on long-term growth, often catering to needs beyond 10 years.

The idea is to balance immediate liquidity with stable income and long-term growth, ensuring retirees can cover their ongoing expenses while protecting savings from inflation and market volatility.

 

Why Bucket Strategies Matter in Australia

Australia’s retirement system is unique and heavily reliant on superannuation funds, which vary in investment options and performance. With increasing life expectancies and uncertainties like inflation, retirees need strategies that offer a balance between access to funds and the growth needed for later years.

The bucket strategy achieves this by:

• Reducing risk during market downturns, as short-term expenses are locked into cash.

• Providing steady income with mid-term investments like bonds or term deposits.

• Ensuring growth potential with equity investments to combat inflation over the long run.

How Do the Three Buckets Work?

1. The Cash Bucket (Short-term security)

This bucket is your safety net. It holds liquid assets like cash and high-interest savings accounts to cover essential needs over the next 1–3 years. Funds in this bucket are insulated from market risks, ensuring predictability and peace of mind.

2. The Fixed Income Bucket (Medium-term stability)

The mid-term bucket typically includes fixed-income products like bonds, term deposits, or managed funds offering stable returns. The goal here is to replenish the cash bucket as funds deplete, providing balance and reducing reliance on volatile investments.

3. The Equities Bucket (Long-term growth)

The long-term bucket is designed for growth, holding investments like shares, ETFs, or property funds. These investments may be riskier but compensate by delivering higher returns over time to outpace inflation and sustain your nest egg throughout later retirement stages.

 

Benefits of Diversifying Retirement Savings Into Buckets

The bucket strategy’s greatest strength comes from its diversification. Here’s how it works to your advantage:

• Reduces Emotional Stress – Having a cash bucket on hand means retirees can avoid “panic selling” equity investments during a market downturn. This prevents locking in losses unnecessarily.

• Balances Risk and Reward – Each bucket is aligned to its timeline, ensuring a measured approach to risk and rewards.

• Boosts Flexibility – Regular rebalancing between buckets allows retirees to adapt their strategies based on changing circumstances, such as unexpected expenses or a shifting risk profile.

 

Factors to Consider When Implementing a Bucket Strategy

Every retiree’s financial situation is unique, and bucket strategies aren’t one-size-fits-all. Factors to keep in mind include:

• Age – Younger retirees may allocate more to the equities bucket, while older retirees might prefer a more conservative allocation.

• Risk Tolerance – Conservative retirees may prioritise cash and fixed income, while more adventurous ones might increase their equities exposure.

• Retirement goals – Are you planning for steady living, legacy building, or something else? Goals shape how funds are distributed across buckets.

• Inflation – Long-term buckets need to be aligned with inflation expectations to preserve buying power.

 

How Bucket Strategies Compare to Other Retirement Approaches

There are alternatives to the bucket strategy, such as the lifecycle approach and the total return strategy:

• Lifecycle Approach: This strategy automatically shifts investments from high-risk assets to low-risk ones as you age. While simple, it lacks the flexibility and customisation of buckets, which allows retirees to actively plan for their needs.

• Total Return Strategy: This focuses on maintaining a diversified portfolio and using withdrawals to cover living costs. While it provides a different form of simplicity, it may expose retirees to market volatility without the safety nets offered by the cash bucket.

The bucket strategy often stands out because it offers a blend of security, flexibility, and tailor ability, ensuring both immediate needs and future growth.

 

Tips for Maximising Your Bucket Strategy

If you’re ready to implement this strategy or already have one in place, here are a few tips to ensure success:

• Regular Reviews – Life happens! Review your allocations annually to ensure they align with your goals and market conditions.

• Seek Professional Advice – A financial planner can help you tailor the bucket strategy to your specific needs and ensure your funds remain optimised for performance.

• Automate Rebalancing – Some super funds allow you to automate rebalancing across investments, making life easier.

 

Planning Ahead With Confidence

Retirement is not just a choice; it’s a transition requiring thoughtful preparation. The earlier you start planning your bucket strategy, the more control you’ll have over your financial future. Combining this approach with professional advice ensures you’ll be well-positioned to achieve your retirement dreams.

Many Australians have already found security and confidence in their bucket strategies. Will you be next? Start planning today, and enjoy a retirement where your finances work as hard for you as you have for them.

If you would like to improve your current investment strategies or are looking to start your investment journey, click here to organise a complimentary 20-minute phone call with an EPG Wealth adviser.

Explore more articles