investing

A Simple Retirement Income Strategy: The Two-Bucket Approach

Photo by Lucas van Oort on Unsplash

One of the most common questions we hear from Wyoming retirees is: “Will I have enough money in retirement?”

After hundreds of conversations over the past decade, we know retirement can be both exciting and intimidating. Replacing a steady paycheck with withdrawals from your savings raises an important question: How can you make your money last for 30 years or more?

One retirement income principle we use at Hale Financial is the bucket approach.

LOOK AT RETIREMENT AS TWO BUCKETS

We find it helpful to view a retirement portfolio as two distinct buckets: a growth bucket and a safety bucket.

This simple framework can help retirees stay focused during market ups and downs and better understand the role each part of their portfolio plays.

THE GROWTH BUCKET

Occasionally, we meet retirees who want to move entirely out of the stock market once they retire. While the desire to protect savings is understandable, avoiding growth investments altogether can create challenges.

First, retirees must contend with inflation. Over time, rising prices reduce the purchasing power of your savings. As an example, the Whopper meal I buy more often than I care to admit costs about $11 today. I have little doubt that one day it will cost $15, then $20, and eventually much more. That's inflation at work.

Stocks and other growth-oriented investments have historically helped investors keep pace with inflation, making them an important part of many retirement plans.

Second, growth investments create opportunities beyond simply generating income. A portfolio that continues to grow may support goals such as leaving an inheritance, making gifts to family, or increasing charitable giving.

THE SAFETY BUCKET

Growth investments come with volatility, which is where the safety bucket comes in.

While no investment is without risk, setting aside a portion of the portfolio in investments such as short- and intermediate-term bonds or money market funds can provide retirees a source of income that is generally less affected by stock market declines.

This can help in two ways. First, it may reduce the need to sell stocks during market downturns, giving investments time to recover. Second, it can provide peace of mind. Knowing that part of your portfolio is designed for stability can make it easier to stay committed to your long-term investment strategy.

IN SUMMARY

A successful retirement requires balancing growth and stability.

The growth bucket helps combat inflation and supports long-term goals, while the safety bucket helps provide reliable income and stability during market downturns.

Viewing your retirement portfolio through this two-bucket framework can help reduce anxiety during periods of volatility and increase confidence that your retirement plan is built to last.

Stock Market Lessons From a Weird 2025 (So Far)

I’m writing on the last day of June. This of course marks the end of the second quarter, the years’ official halfway point, and is another reminder that Wyoming summers are short, and I’ve spent too much time at work and not enough time horsing around with my kids outside.

The last three months have been particularly interesting in financial markets, so I thought I’d write a quick post reflecting on some of the key lessons I’ve observed so far this year.

Diversification Means You're Never 100% Satisfied

The US stock market’s performance during the first quarter has been “interesting” once again. 

Of course, no one is happy to see their stocks (and overall portfolio) go down in value, but there are some valuable lessons to glean from what’s been happening this year that are worth pointing out, because it highlights an absolutely critical principle every investor must understand. It is this…

When you’re well diversified, you’re never 100% happy. Let me explain.

Never the Same Stream Twice: A Look at the Stock Market's Last Five Years

The Greek philosopher Heraclitus is credited with saying “everything changes and nothing remains still.” He argued that this saying captures the essence of the entire universe. I’m not sure if he’s right or wrong, but it certainly gets close to capturing the essence of economic events across the world. 

Are there lessons to be learned from world economic events and how they impact financial markets, particularly stocks? I’d like to explore this idea briefly today, and I promise it won’t get too deep or nerdy. In fact, by the time I’m done you may have some added perspective to help you navigate the uncertain times we’ve always been in, and will continue to experience.

Ways to Combat Inflation in Retirement

The financial shock of soaring inflation in 2022 caught everyone off guard. Within a matter of months, the price of rent, fuel, and countless consumer goods went through the roof. Having been in a period of relatively low, calm inflation for decades led us not to worry about this financial expense, until things went really wrong.

While inflation is now trending downward, inflation is historically always present, and there’s still a threat that unusually high inflation can rear its ugly head once again, especially given that most retirees expect to live another 20 to 30 years once they leave the workforce.