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Retirement Income: The Bucket Strategy

Learn strategies for converting your retirement savings into an income stream.

Three buckets in different, yet complimentary colors.

Early in your career, retirement saving is like a game of checkers: Earn more, invest more, repeat. As you think about transitioning to retirement, planning becomes more like chess and should be more strategic. Your goals in this “game"? Plan for your money to outlast you and create a retirement income stream to live on.

If you want to stop working at age 65, financial experts suggest retirement planning for an additional 30 to 35 years—in other words, estimate that you still have about a third of your life ahead of you.

It may sound daunting, sure. But long-term planning can go a long way toward helping you stay at the top of your retirement game: namely, creating sufficient retirement income.

What Is the Bucket Retirement Strategy?

How can you plan to have your money last? One common way to plan for retirement income is to use the “bucket strategy.” Here’s how it works: Divide your portfolio into two to six buckets for shorter- and longer-term goals: now, soon and later.

3 green buckets labeled Now 1 to 5 years, Soon 6 to 15 years and Later 16 to 30 years.

The “now” bucket includes money needed over the next one to five years. It’s used to cover expenses needed beyond any income you have coming in at the time, such as Social Security, rentals, pensions, or part-time income.

How Does the Bucket Strategy Work?

Money in the “soon” bucket is for the expenses beyond five years, such as 6 to 15 years, and the “later” bucket is broadly calculated to replenish “now” and “soon” buckets when needed. Generally, shorter-term buckets carry less risky investments, and longer-term buckets carry more risk (according to your tolerance).

The bucket strategy helps you plan for immediate monthly income in retirement, while helping you plan for future years. Investments in your longer-term buckets will eventually be moved to shorter-term buckets, helping you convert retirement savings into income.

Important Retirement Income Questions to Ask Yourself

Some basic questions to ask yourself to help prepare your bucket strategy:

  • What will my immediate costs be when I retire? This question requires additional answers for your retirement budget such as: Where will you live? What’s the cost of living? Will your car last, or should you plan to buy a new one? Have you accounted for unexpected costs and health care expenses?

  • What will my lifestyle look like? In answering this question, imagine having up to 52 weeks of vacation per year when you retire. Will your hobbies or time be filled with expensive or inexpensive things? Do you want to travel or get a part-time job to help make ends meet? Will you spend time volunteering with your favorite group or cause?

  • What will my legacy be? This question is a critical part of your plan because it helps you figure out what you want to leave behind for family, friends and causes you care about.

How can you best save toward your goals?

  • Retire now or later? Besides stretching the time needed to lean on your savings and investments, you’ll earn full Social Security benefits if you delay retirement until age 70.

  • Reduce expenses. Whether now or in the future, reducing your monthly costs may help stretch your money longer into the future.

  • Reevaluate your appetite for risk. While some move from equities to perceived safer investments such as bonds in retirement, if you live another 20 or 30 years, there may be time to potentially grow your money from growth investments. But it’s not guaranteed, and the decision must always be weighed against the higher risk of losses these assets carry.

How Do You Turn Your Retirement Savings Into Income?

Learn how to convert your investments into the income you need with these four steps.

Top 7 Sources for Retirement Income

Here are some income sources that you may already have and others to consider for your bucket strategy in retirement.

Social Security Benefits

While Social Security payments may not be enough to fully fund the retirement of your dreams, every bit helps. Knowing how much your benefits will be and how your retirement age impacts your payments is essential when considering how to maximize Social Security.

For anyone born in 1960 or later, full retirement benefits are payable at age 67. You may take benefits as early as age 62, but your monthly payment will be reduced by 30% monthly for the length of your retirement. However, if you wait until age 70, you’ll be rewarded with 124% of the monthly benefit instead.* That doesn’t mean waiting is right for everyone, because there are specific reasons why people may want to claim Social Security early.

Related: Nearing Retirement? Move Closer to Your Retirement Goals

RMDs From Retirement Accounts

When you reach age 73 (age 75 in 2033), you must begin taking annual withdrawals from most retirement accounts, excluding Roth IRAs. Except for your first year taking required minimum distributions (RMDs), you must take distributions by December 31 to avoid a hefty penalty.

The amount you need to withdraw depends on your economic situation. Our RMD calculator can help you see how much you should withdraw.

Withdrawals From Your Investments

Outside of RMDs, when it’s time to withdraw from your retirement savings, which should you draw from first if you have multiple accounts? Consider starting with the least to the most tax-efficient accounts.

Every financial situation is different but financial experts often recommend this order because of tax implications and the assumption that your taxes will be lower later in retirement:

  1. Taxable accounts: non-retirement accounts.

  2. Tax-deferred accounts: traditional IRAs and 401(k)s, which defer taxes until you begin spending from the account. The longer you wait, the more the account potentially grows tax-free.

  3. Tax-exempt accounts: Roth IRAs. Since these are funded with post tax dollars, there are advantages to using this money (once it’s held for the required period) last and enjoying tax-free withdrawals.


Broadly, there are two types of retirement income financial products—investment- and insurance-based. Both may provide income that can potentially last for a period, such as 25 years, or the lifetime of you and your spouse. Annuities are an example of insurance-based products. A pro of an annuity for retirees is the guaranteed income stream it offers. However, payments may not keep pace with inflation, and associated fees may be higher than other investment options.

Dividend Mutual Funds

Dividend mutual funds invest in companies that distribute a portion of their earnings to investors on a regular basis. You can also buy individual dividend stocks or exchange-traded funds that invest in dividend stock companies. Dividend funds typically pay investors each quarter, but the amounts can rise and fall. However, there is a potential for payouts over time for a steady stream of retirement income.

Real Estate Investment Trusts (REITs)

REITs mutual funds hold real estate assets and can potentially help investors expand their portfolios for income. Also, as REITs typically operate like income-generating real estate, they may pay out annual dividends as another potential source of income for investors. Moreover, REITs have traditionally outperformed the S&P 500® Index during times of inflation.

TIPS and Other Inflation Strategies

Speaking of inflation, living on a fixed income in retirement may mean that rising prices are suddenly more important to your short-term financial future. Money that can buy less over time can have a devastating impact on your planning and retirement budget.

Along with REITs, another strategy to potentially fight inflation are TIPS, or Treasury inflation-protected securities. As the name suggests, TIPS are designed to help protect against inflation by linking principal value based on the Consumer Price Index, so that the principal rises or shrinks in tandem with inflation.

Get Help With Your Strategy

While retirement planning can feel overwhelming, breaking down your portfolio with the bucket strategy as you near retirement and understanding the income sources may help you plan for the income you’ll need.

Need help or have questions about this or other retirement strategies?

Talk to a financial consultant.


Social Security Administration,, September 2022.

As with all investments, there are risks of fluctuating prices, uncertainty of dividends, rates of return and yields. Current and future holdings are subject to market risk and will fluctuate in value.

IRA investment earnings are not taxed. Depending on the type of IRA and certain other factors, these earnings, as well as the original contributions, may be taxed at your ordinary income tax rate upon withdrawal. A 10% penalty may be imposed for early withdrawal before age 59½.

Investment return and principal value of security investments will fluctuate. The value at the time of redemption may be more or less than the original cost. Past performance is no guarantee of future results.

Please consult your tax advisor for more detailed information regarding the Roth IRA or for advice regarding your individual situation.

Taxes are deferred until withdrawal if the requirements are met. A 10% penalty may be imposed for withdrawal prior to reaching age 59½.

You could lose money by investing in a mutual fund, even if through your employer's plan or an IRA. An investment in a mutual fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

IRS Circular 230 Disclosure: American Century Companies, Inc. and its affiliates do not provide tax advice. Accordingly, any discussion of U.S. tax matters contained herein (including any attachments) is not intended or written to be used, and cannot be used, in connection with the promotion, marketing or recommendation by anyone unaffiliated with American Century Companies, Inc. of any of the matters addressed herein or for the purpose of avoiding U.S. tax-related penalties.

This information is for educational purposes only and is not intended as tax advice. Please consult your tax advisor for more detailed information or for advice regarding your individual situation.

REITs funds may be subject to many of the same risks as a direct investment in real estate. These risks include changes in economic conditions, interest rates, property values, property tax increases, overbuilding and increased competition, environmental contamination, zoning and natural disasters. This is due to the fact that the value of the fund's investments may be affected by the value of the real estate owned by the companies in which it invests. To the extent the fund invests in companies that make loans to real estate companies, the fund also may be subject to interest rate risk and credit risk.

This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.