Bucket 1: The “Now” Bucket is designed to be your safe and secure money which includes your "magic number" as well as living expenses in the first year or two of your retirement. The now bucket will also provide liquidity for larger planned expenses, such as a new car, home repairs or any other “big ticket” items. In the past your "Now" bucket was strictly an emergency fund, today it is much more.
Bucket 2: The “Soon “Bucket is the preservation bucket. Because this money may be needed sooner rather than later (years 2-11 of your plan), it is invested for growth—but conservatively. This may provide income in the first phase of your retirement while also acting as an inflation hedge to help combat the rising cost of living. By investing conservatively, a client avoids the risk of being forced to sell during a large downward swing, ultimately liquidating a bigger piece of their overall portfolio for the same dollar amount. The “Soon” Bucket is created to reduce your exposure to extreme market fluctuations, thereby eliminating Sequence of Returns risk.
Bucket 3: The “Later” Bucket is designed for long-term growth and legacy planning. Having bought a time horizon with the first two buckets, a client can choose to invest in vehicles with a longer time commitment and greater growth potential with more confidence. In retirement, this bucket can play a critical role in legacy planning too, particularly to provide income for a surviving spouse.