A pot for today. A pot for the next few years. A pot for the distant future. Retirement bucketing offers a reassuring story. But what does the evidence say about how it works?
Separating a retirement portfolio into buckets can make an investment strategy easier to explain. Cash covers near-term spending, while longer-term investments are given time to grow.
The appeal is understandable. When markets fall, clients can see where their next withdrawal is coming from. But reassurance and improved financial outcomes are different things.
Our paper, Buckets, Blankets and other Bedtime Stories: The folklore of retirement income, examines the evidence behind bucketing, the potential cost of cash buffers and the role advisers play in helping clients navigate difficult markets.
There are two questions here.
First, does bucketing reduce sequence of returns risk? This is the risk that poor returns, particularly early in retirement, combine with withdrawals to leave less money invested for any subsequent recovery.
Second, does it help clients remain invested when falling markets make them want to sell?
A strategy could provide behavioural reassurance without improving portfolio sustainability. Assessing its value therefore means examining both the financial outcomes and the behaviour it is intended to support.
Does the structure improve the retirement plan, help the client stick with it, or achieve some combination of the two?
Alongside a review of earlier research, Timeline tested three approaches using historical returns spanning 1915 to 2025.
The analysis used a £1 million starting portfolio, an initial annual withdrawal of £40,000 increasing with inflation, and 973 overlapping thirty-year retirement scenarios.
The three approaches were:
These were compared with single-pot portfolios, examining whether the money lasted, how long it survived in difficult scenarios and what remained at the end.
The comparisons involve different asset allocations and rebalancing rules. The bucket portfolios started with 60% equities, 30% bonds and 10% cash, while the main single-pot comparison held 60% equities and 40% bonds. This matters when interpreting the results.
The analysis challenges the idea that dividing a portfolio into buckets automatically improves its resilience.
In the historical scenarios tested, the two refill-based strategies had lower survival rates than the single-pot 60/40 comparison. Their results were particularly challenging in scenarios with poor sequences of returns.
The sequential approach produced a different picture. Spending the lower-risk buckets without replenishing them allowed equities to become a larger share of the remaining portfolio over time.
That makes the changing asset allocation central to understanding the outcome. The paper examines this through a rising equity glidepath, where equity exposure increases as retirement progresses, and includes an additional single-pot 80/20 comparison.
A portfolio strategy cannot be assessed entirely separately from the person holding it. If a client abandons their plan during a downturn, the consequences can be significant.
The paper considers the potential cost of panic selling alongside the cost of bucketing. It also explores research on preparing investors for difficult markets before those markets arrive.
Showing a range of possible outcomes, discussing what a decline could mean for spending and regularly revisiting expectations may help clients understand the risks they are taking. The studies discussed offer useful insights, although they do not establish that a particular communication approach will prevent every client from selling.
Bucketing can provide a way to explain a retirement strategy. But its financial effects depend on the underlying allocation, withdrawal rules and how the buckets are replenished.
The paper invites advisers to examine what their chosen structure achieves, what it costs and how it works alongside the ongoing conversations that support a client's retirement plan.
Explore the full paper
Explore the evidence behind retirement bucketing, compare the historical outcomes of different withdrawal strategies and consider the role of behavioural coaching in helping clients stay invested.