Retirement Strategies

Retirement strategies and tips to assist in shaping your financial future.

Transitioning into retirement? Start to get your buckets in place early.

Transitioning into retirement? Start to get your buckets in place early.

(Reading time: 2 - 4 minutes)

Don’t put all your eggs in the one basket. Us planners use the word diversification to explain this concept.

However, the devils in the detail when executing a well-diversified investment portfolio and it largely depends on which life stage you’re at when selecting the right approach.

There are two approaches to implementing a well-diversified investment portfolio, the first being a diversified multi asset investment fund and the second being a well-diversified “investment bucket” portfolio approach. They both spread a client’s funds across difference asset classes to smooth the returns however one approach works especially well for our accumulator clients whilst the other is the foundation for managing our retired client’s portfolio’s.

This article focuses on the “investment bucket” diversification approach for our retired clients. This framework generally has a least 4 “buckets” ranging from the short-term bucket for transactions to the long term bucket for capital growth and protecting our clients purchasing power.

Bucket 1: The short-term bucket.

The transaction or cash account. Pays for pension payments and costs.

Think of bucket number 1 like a glass of water, as we drink from it (draw money out) the water level reduces. We need to top this glass back up to ensure we can keep drinking as retirement is thirsty work. How do we top it back up? We direct the ‘water’ from buckets 2, 3 and 4 to this bucket. That way we can keep drinking. Should the water levels fall too low we may need to sell some of the profits from buckets 3 and 4 to top back up however we only want to do this when there are profits to take, however, we need to allow sufficient time for those assets to flourish and grow.

sfp bucket 002

Bucket 2: The cash reserve.

Holds a year of pension payment provisions along with an amount reserved for emergencies and unexpected expenses.

In the event we need to top up bucket 1 within the first 5 years we can call on the reserve bucket to help us out. We can use these funds at a pinch to ensure there’s enough water (or cash) in bucket 1 to draw on. This is our contingency account for what ifs. Needs to be readily accessible. Could be a high interest cash managed fund and a Term Deposit (depending on how much we’re holding in reserve).


sfp bucket 003

Bucket 3: The medium-term bucket.

Our 5–7-year money with a focus on delivering steady, reliable, and growing income.

Generally invested with the primary goal to provide growing income and ensure asset value keeps pace with inflation to preserve the purchasing power of our funds. This bucket generally invests largely in blue chip Australian shares with a focus on paying fully franked dividends, infrastructure and bonds with high yields. As we all know the cost of living doesn’t stop increasing for anybody and retirees know they need to be drawing a higher income each year.

sfp bucket 004

Bucket 4: The long-term bucket.

Our 7 – 10-year money. Invested largely in growth assets such as shares and property with a timeframe of 7-10 years.

Our primary investment objective for this bucket is to preserve the purchasing power of our capital. Therefore, this bucket’s goal is to produce capital growth along with some income. Income from this bucket is directed to bucket number 1 (or reinvested in we can afford it).

When should I start transitioning to an “investment bucket: portfolio approach?

There’s no set answer however generally speaking allowing somewhere between 3 and 5 years prior to retirement is best practice and allows sufficient time to build up our short and medium term buckets. We’ll be raising this with you at your annual progress meeting.


Gary Winwood-Smith
Director | Senior Financial Planner



Do you need help with the conundrum of income or growth?

Speak with one of our Financial Planners about the best investment strategy for your circumstances, call 02 9328 0876 to arrange a meeting.


General Disclaimer: This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. Please seek personal financial advice prior to acting on this information.