Understanding the Bucket Approach

Understanding the Bucket Approach: A Framework for Managing Cash Flow and Market Risk

This material is for informational purposes only and does not constitute investment advice. Investing involves risk, including the possible loss of principal. Past performance is not indicative of future results.

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Why Time and Goals Matter in Financial Planning

Clear goals and timing are essential for retirement and financial planning. They help you prepare for near-term expenses—like a home project—without making reactive decisions during market volatility.S

At Correct Capital Wealth Management, we use a goals-based framework called the Bucket Approach. This strategy organizes assets by time horizon to help manage risk and maintain discipline.

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The Three Buckets at a Glance

• Bucket 1: Cash (12–24 months)
  Immediate expenses and upcoming needs.
• Bucket 2: Income (1–10 years)
  Stability and replenishment of cash.
• Bucket 3: Growth (10+ years)
  Long-term investments for future spending.

When combined, these buckets create a structured withdrawal plan that supports near-term needs while allowing long-term assets to grow.

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Bucket 1: Cash for the Next 12–24 Months

This bucket provides liquidity for short-term spending.

Typical holdings:

• Checking/savings accounts
• Money market funds
• Short-term CDs or Treasury bills

Purpose:

• Reduce the need to sell investments during market downturns
• Provide peace of mind for near-term expenses

Bucket 2: Income for the Next 1–10 Years

Designed to generate predictable income and refill Bucket 1 when needed.

Typical holdings:

• Bonds and bond funds
• Annuities or guaranteed income sources
• Social Security or pension income

Goal:

• Maintain stability while staying invested
• Target returns that keep pace with inflation

Bucket 3: Growth for 10+ Years Out

Focused on long-term growth and legacy goals.

Typical holdings:

• Diversified equity exposure (stocks, ETFs, mutual funds)
• Satellite positions aligned with risk tolerance

Why it matters:

• Historically, equities have delivered positive returns over long horizons
• Helps combat inflation and fund later retirement years

The “Waterfall” Process

The buckets work together through a systematic flow:

1. Spend from Bucket 1 for near-term needs
2. Replenish Bucket 1 from Bucket 2 income
3. Refill Bucket 2 from Bucket 3 after strong markets

This approach helps reduce the need to sell long-term investments during downturns.

Hypothetical Examples

These examples are for illustration only and do not represent actual client results.

• Near Retiree: Plans major expenses in the next 18 months; keeps 18–24 months of withdrawals in Bucket 1, stability in Bucket 2, and growth in Bucket 3.
• Accumulator: Saving for a home in 12–18 months; down payment in Bucket 1, medium-term goals in Bucket 2, and long-term growth in Bucket 3.

Sizing the Buckets

There is no one-size-fits-all solution. Common starting points:

• Bucket 1: 12–24 months of withdrawals or near-term expenses
• Bucket 2: Enough for years 2–10 of spending
• Bucket 3: Assets for long-term growth

Tax considerations also play a role in bucket allocation.

Benefits and Limitations

Potential Benefits:

• Helps manage sequence-of-returns risk
• Provides clarity on where spending will come from
• Reduces emotional decision-making during volatility

Limitations:

• Does not eliminate market risk
• Requires ongoing monitoring and adjustments

Maintaining the Plan

• Annual reviews for changing goals
• Rebalancing after strong markets
• Tax-aware allocation across accounts

Who Might Benefit

• Retirees seeking predictable withdrawals
• Professionals wanting guardrails against emotional decisions
• Families planning for major expenses
• Long-term investors focused on growth

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Ready to Learn More?

Correct Capital can help you customize a bucket strategy based on your goals, time horizon, and risk tolerance.

Contact us:
Call (877) 930-4015, contact us online, or schedule a 15-minute introductory call.

Important Disclosures

This material is provided for informational and educational purposes only and should not be construed as personalized investment advice or a recommendation to buy or sell any security. The Bucket Approach is a conceptual framework and does not guarantee performance or eliminate market risk. All investments involve risk, including the possible loss of principal. Past performance is not indicative of future results.

Examples provided are hypothetical and for illustrative purposes only; they do not represent actual client experiences or outcomes. Individual circumstances vary, and strategies should be tailored to your specific goals, risk tolerance, and financial situation.

Correct Capital Wealth Management is a registered investment adviser. Registration does not imply any level of skill or training. For more information about our services and disclosures, please review our Form ADV and other regulatory filings at https://www.sec.gov.