What is a bucket strategy, and does it actually work?
A bucket strategy splits retirement savings by when the money will be spent: cash for the next year or two, bonds for the medium term, equities for the long tail. Its measurable advantage over a simple rebalanced portfolio is small; its behavioural advantage is that it tells you exactly what to sell in a year you do not want to sell anything.
- Bucket one: one to two years of withdrawals in cash or a money market fund.
- Bucket two: the next five to ten years in bonds and lower-volatility assets.
- Bucket three: everything beyond that in equities, left alone.
- The refill rule: top the first bucket up from the others in good years, and only in good years.
01 How the buckets are set
Bucket one holds one to two years of planned withdrawals in cash or a money market fund, and it is what you actually spend from. Bucket two holds the next five to ten years in bonds and lower-volatility assets. Bucket three holds the rest in equities and is not touched.
The sizes follow from the spending plan rather than from a percentage. A household withdrawing £24,000 a year holds around £40,000 in bucket one, not '10% in cash', and the difference matters because a percentage rule leaves a small portfolio underfunded on the short horizon.
State Pension and any defined benefit income reduce what bucket one has to hold, because they arrive whatever markets do. That is why the guaranteed income question comes first.
Shows: the size of each bucket for your spending plan, after guaranteed income is taken into account. Ignores: returns, inflation, tax, and how long a downturn actually lasts.
On the defaults above, the worked example shows £42,904. Bucket one holds £42,904 and bucket two £171,616; everything beyond that can stay in equities.
Source: Plan your retirement income
02 Why the arithmetic is a draw
Compared against a simple portfolio rebalanced annually to the same overall asset mix, a bucket strategy produces very similar outcomes. That is unsurprising: the buckets are an asset allocation described differently, and money is fungible whatever label is on it.
Where buckets do differ is in the refill rule, which usually amounts to selling equities after they have risen and not selling them after they have fallen. That is a mild momentum tilt, and studies of it find the effect small in either direction.
So the honest claim is not that the strategy beats rebalancing. It is that a retiree following it makes fewer destructive decisions, and destructive decisions cost far more than allocation differences.
Source: Retirement Savings: Choosing a Withdrawal Rate That Is Sustainable
03 The behavioural case
The hardest year in retirement is the one where the portfolio has fallen a quarter and you still need to eat. A bucket structure answers that question in advance: you spend bucket one, you do not sell equities, and you refill when markets recover.
That removes the decision from the moment it is hardest to make, which is the same reason a written cut rule works. The value is in having decided already, not in the structure itself.
Its weakness is the same as its strength. A retiree who refills bucket one mechanically in a long bear market drains the middle bucket and ends up selling equities anyway, just later. The rule needs a condition on it — refill in years the portfolio is up, and let bucket one run down in years it is not.
Source: Retirement income market data
I recommend buckets and I am honest about why: not because the maths favours them, because it does not, but because they answer the only question that matters in a bad year. A retiree with a rebalanced portfolio and no rule has to decide what to sell while the news is frightening. A retiree with buckets already knows. The one thing to get right is the refill condition — top bucket one up in years the portfolio is up, and let it run down in years it is not. Refilling mechanically through a long bear market rebuilds the problem you were avoiding.
FAQ
Does a bucket strategy beat a rebalanced portfolio?
Not measurably. The buckets are an asset allocation described differently, and comparisons find the outcomes very similar. The advantage is that the structure answers what to sell in a bad year before the bad year arrives.
How big should the cash bucket be?
One to two years of the gap between your spending and your guaranteed income, not a percentage of the portfolio. A percentage rule leaves a smaller portfolio underfunded on the short horizon, which is where the protection is needed.
When do I refill bucket one?
In years the portfolio is up. Refilling mechanically through a long downturn drains the middle bucket and forces equity sales anyway, just later — so the rule needs a condition rather than a schedule.
Sources
Regulator references
- Plan your retirement income · GOV.UK · 2025The government's own sequence for turning pension pots into income.Last verified: 2026-09-07
- Retirement income market data · Financial Conduct Authority · 2025What UK savers actually do at retirement, measured rather than assumed.Last verified: 2026-09-07
Research
- Retirement Savings: Choosing a Withdrawal Rate That Is Sustainable · American Association of Individual Investors · 1998The Trinity study's own tables, cited for the success rates at each withdrawal rate and horizon.Last verified: 2026-09-07
Calculator unit tests · the assertions this page's worked example is checked against, and their last result
Changelog
- 2026-09-07 — initial publish (new format)
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Jordan Reeves
Founder of Talk Through Wealth. A software engineer for over a decade before turning to retirement planning, Jordan built the projection engine after watching family members get fragmented, country-by-country advice that never reconciled. He writes about retirement the way the engine computes it: month-by-month, lifetime-long, and skeptical of any rule of thumb that hasn't been run through the math.