What does the bucket approach to withdrawals focus on?

The bucket approach to withdrawals emphasizes the importance of segmenting funds based on different time frames and financial needs. This strategy categorizes assets into "buckets" that are designated for specific purposes, such as short-term needs, intermediate goals, and long-term growth. Typically, the first bucket holds liquid assets to address immediate cash flow needs, ensuring that withdrawals can be made without having to sell investments during a market downturn. The second and third buckets may include a mix of investments with varying degrees of risk and growth potential, designed for future needs that are further down the road.

By using this segmented approach, retirees can manage their withdrawals more effectively while also aligning their investment strategies with their financial goals. This method allows for better risk management and helps to maximize the longevity of their retirement savings, as different buckets can be tailored to adjust for market conditions and personal circumstances over time.