--- title: A Flaw with Bucket Strategies and Retirement Planning description: Is bucket planning the best solution for retirement planning? image: https://www.covisum.com/hubfs/7614_WEB_Covisum_landing-page-ICON-aligned-interests-SST.png --- [Login](https://www.covisum.com/login-experience) | [Call: 402-235-4500](tel:1-402-235-4500) | [Contact Us](https://www.covisum.com/contact) ** [![covisum-logo](https://www.covisum.com/hs-fs/hubfs/covisum-logo.png?width=264&height=41&name=covisum-logo.png "covisum-logo")](https://www.covisum.com/) [![Start Your Free Trial](https://no-cache.hubspot.com/cta/default/2755909/b23743cd-d0df-4907-a66d-293b58ab1164.png)](https://cta-redirect.hubspot.com/cta/redirect/2755909/b23743cd-d0df-4907-a66d-293b58ab1164) [![Contact Us](https://no-cache.hubspot.com/cta/default/2755909/6c6d7fe7-e094-4fc0-9c82-d93d4ccbb532.png)](https://cta-redirect.hubspot.com/cta/redirect/2755909/6c6d7fe7-e094-4fc0-9c82-d93d4ccbb532) # A Flaw with Bucket Strategies and Retirement Planning [IN THE NEWS  |  ](https://www.covisum.com/blog/topic/in-the-news)2/8/18 7:42 AM  |  by [Joe Elsasser, CFP®, Founder and President of Covisum](https://www.covisum.com/blog/author/joe-elsasser-cfp-founder-and-president-of-covisum) The bucket strategy is designed to break a retiree’s assets into "buckets" based upon when those buckets are expected to be used to provide retirement income. The buckets nearest today are invested conservatively so that market fluctuations will have little impact on the retiree’s ability to draw a predictable amount from them. The investments in later buckets are invested more aggressively, with the expectation that a higher risk level should provide a higher return over time. In some bucket models, buckets are "refilled" by selling from later buckets during good times in the markets. In other bucket models, the client's asset allocation is allowed to become steadily more aggressive as the client ages. The first option works better for a constrained investor who has just enough retirement savings to meet their needs. The latter works better for someone who is well-funded, with more than enough assets to weather significant dips in the markets. ## 'Peace of mind' Psychologically, the bucket strategy certainly provides some peace of mind in that it allows higher levels of certainty for near-term income at the most vulnerable time, which is early in retirement. If a retiree experiences a significant dip in the markets, they can anchor on the idea that the more aggressively invested assets — which will likely have dropped the most — will have time to recover before they need to use them.   There is no real evidence that the bucket strategy is anything more than mental accounting, or constructing a simplified version of reality in order to compartmentalize decisions without having to consider the impact on other decisions. In practice, any traditional asset allocation could be used in the same way, with a systematic withdrawal from the portfolio overall being used to meet monthly income needs. During tough markets, the advisor may choose to set the withdrawal from the bond portion of the overall allocation. Alternatively, if the portfolio is regularly rebalanced, spending proportionally from the portfolio gets "fixed" at annual rebalancing time, because equities will likely have fallen more than bonds, causing the equity portion that was spent to be replenished by selling a portion of the bond allocation.   ## The major flaw of the bucket strategy There is one major flaw with all investment strategies for retirement income, but particularly with the bucket strategy. It assumes that the assets in later buckets will recover. Although U.S. history would tell us that markets always come back, a broader look at markets across the world and through time would tell us that this simply isn't true. It is possible to have a significant recession without a significant recovery  — look to Japan. Investors should absolutely consider the base of income they have from highly likely sources such as Social Security first. The investor either needs to take steps early in retirement to annuitize a portion of their retirement assets to provide an acceptable minimum standard of living, or have some sort of system in place to monitor the portfolio so that if it nears the "point of no return" they can annuitize all or a portion of their remaining assets.  ## Moving forward with Covisum Advisors and financial institutions rely on us to help them guide their clients to make the best financial decisions. With our proven process, advisors are able to streamline their practices, offer actionable insights, and utilize successful marketing tactics. Take a look at our suite of tools, designed to help identify areas where consumers are leaving significant money on the table, usually due to the complexity of the issue. Our software to allows financial advisors to capitalize on these classic misunderstandings.   [![Learn more](https://no-cache.hubspot.com/cta/default/2755909/5d08cf36-2773-4b0d-85b4-fff02ad0b664.png)](https://cta-redirect.hubspot.com/cta/redirect/2755909/5d08cf36-2773-4b0d-85b4-fff02ad0b664) ### Share this article [![Share on Facebook](https://static.hubspot.com/final/img/common/icons/social/facebook-24x24.png)](http://www.facebook.com/share.php?u=https%3A%2F%2Fwww.covisum.com%2Fblog%2Fbucket-strategies-and-retirement-planning%3Futm_medium%3Dsocial%26utm_source%3Dfacebook) [![Share on LinkedIn](https://static.hubspot.com/final/img/common/icons/social/linkedin-24x24.png)](http://www.linkedin.com/shareArticle?mini=true&url=https%3A%2F%2Fwww.covisum.com%2Fblog%2Fbucket-strategies-and-retirement-planning%3Futm_medium%3Dsocial%26utm_source%3Dlinkedin) [![Share on Twitter](https://static.hubspot.com/final/img/common/icons/social/twitter-24x24.png)](https://twitter.com/intent/tweet?original_referer=https%3A%2F%2Fwww.covisum.com%2Fblog%2Fbucket-strategies-and-retirement-planning%3Futm_medium%3Dsocial%26utm_source%3Dtwitter&url=https%3A%2F%2Fwww.covisum.com%2Fblog%2Fbucket-strategies-and-retirement-planning%3Futm_medium%3Dsocial%26utm_source%3Dtwitter&source=tweetbutton&text=A%20Flaw%20with%20Bucket%20Strategies%20and%20Retirement%20Planning) ## Related Blog Articles [ ### Tax Clarity How Tax Clarity Shines a Light on the Retirement Tax Landscape Read ](https://www.covisum.com/blog/how-tax-clarity-shines-a-light-on-the-retirement-tax-landscape) [ ### In The News The SECURE Act: What Advisors Need to Know Read ](https://www.covisum.com/blog/the-secure-act) [ ### Retirement Income Planning Maximizing Retirement Income with Covisum's Financial Planning Suite Read ](https://www.covisum.com/blog/maximizing-retirement-income-with-covisums-integrated-suite-of-financial-planning-products) [See All Articles](https://www.covisum.com/blog) ## Covisum’s ecosystem of solutions can help you grow. 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