Making Your Retirement Savings Last

Zachary Bouck |

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As life expectancy increases, many of today's retirees face the risk of outliving their retirement savings, and for a good reason. According to a study conducted by the World Economic Forum, U.S. men and women can expect to live to 83 and 85½, respectively.

For the average American retiree—man or woman—their retirement savings will last for about 9.7 years, leaving a fairly substantial deficit for those who retire at 65.1

But fear not. In this episode of the Mind of a Millionaire (MOAM), I want to discuss an asset allocation strategy referred to as bucketing, which will help you address longevity risk and manage emotion in retirement. If you would like to talk with an advisor one-on-one about addressing your retirement needs, schedule a consultation on our website or call our office at (303) 261-8015.

A bucketing strategy entails a balanced objective of growing your assets in the long term while protecting against short-term risk.

Look at March 2020, for example. A retiree who invested 100% in an S&P 500 index fund would have lost 34% of their savings in weeks. Most investors understandably cannot stomach such a substantial drop, leading them to a cash move.

Sure, when you invest solely in cash and similar assets, you protect your principal, but you also assume higher purchasing power risk. Assuming the Fed's annual target inflation rate of 2%, $1,000,000 in cash today is worth just over $817,000 in 10 years—essentially a loss of $183,000 by doing nothing. 

That said, let's explore the strategy.


The bucketing strategy includes three 'buckets:' growth, income, and capital preservation. The objective of your growth bucket is just that, long-term growth. This bucket should aim to capture the S&P 500's historical upside potential of 10-12%, largely through index funds, mutual funds, or a diversified portfolio.

In your second bucket, the income bucket, your goal is to generate 5-7% of consistent annual income through stocks, bonds, rental properties, etc.

And finally, we have the capital preservation (CP) bucket. This bucket should protect your retirement savings by investing in risk-averse assets, including U.S. Treasuries, municipal bonds, high-quality corporate bonds, and potentially blue-chip companies (although those may be more suitable for the former two buckets).


An investor's capital should be split evenly between the three buckets (33% in each). The key to the bucketing strategy is annual rebalancing to maintain the correct allocations. To better illustrate how this works, let's look at a hypothetical investor with $1,000,000 in investable assets.

With $1,000,000, she would allocate $333,333 to growth, income, and CP. Let's assume she withdraws $40,000 in the first year—perhaps she wants to spoil her family with a vacation. That $40,000 comes from her CP bucket.

Let's also assume the growth bucket improved by a respectable 8% ($26,667) and the income bucket by 4% ($13,333). Now, her buckets are a little out of whack:

Growth: $359,999 (36%)
Income: $346,667 (35%)
Cap. Preservation: $293,333 (29%)
Total: $999,999

After year one, our investor will redistribute the earnings from her growth and income buckets to even out the $40,000 withdrawal from her CP bucket.

By utilizing the bucketing strategy, our investor mitigates her risk against a market correction. Even if the S&P 500 dropped to zero, our investor could take $40,000 from her CP account for over eight years—that's nearly an entire decade for the market to recover and replenish her growth and income buckets.


Investors who implement the bucketing strategy address two crucial factors: piece of mind and growth potential.

We had many conversations with clients last March when the market dropped 34%. That hurts investors, especially those with shorter investment horizons. But for those with full CP buckets, they were far less emotionally impacted—as a matter of fact, those safe investments tend to perform well during market corrections.

The bucketing strategy also allows investors to participate in market growth to hedge against purchasing power risk (a.k.a., inflation risk). With 66% of your assets aimed at appreciation, many asset allocation investors can—depending on the performance of their holdings and withdrawal amounts—grow their retirement accounts over time.


There's a misconception that the most intelligent investors are the best investors. The reality is, a patient and disciplined investor with a suitable investment strategy will often generate the most consistent long-term results. It's the person who doesn't panic-sell when the market falls, nor rushes in to buy when the market is expensive.

If you need help analyzing your long-term investment strategy, do not hesitate to reach out. You can schedule a free one-on-one consultation on our website or call our office at (303) 261-8015.



1Wood, Johnny. “Retirees Will Outlive Their Savings By a Decade.” World Economic Forum, 13 Jun 2019. (Accessed 27 May 2021)


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

All investing includes risk including the possible loss of principal. No strategy assures success or protects against loss.

Asset allocation does not ensure a profit or protect against a loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio.

Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

Government bonds and Treasury bills are guaranteed by the US government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.

Bonds are subject to marker and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.

The payment of dividends is not guaranteed. Companies may reduce or eliminate the payment of dividends at any given time.

Any quoted rate of return is a hypothetical example and is not representative of any specific investment. Your results may vary.

All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

Investing in mutual funds involves risk, including possible loss of principal.

All information is believed to be from reliable sources; however, Denver Wealth Management, Inc. and LPL Financial make no representation to its completeness or accuracy.