With retirement fast approaching, many people are thinking about how to invest their savings and assets to generate retirement income. The 2 bucket investment strategy is a simple yet effective approach to balance risk and stability for retirement finances. By dividing investments into a growth bucket and income bucket, retirees can take advantage of market upside while securing a steady stream of income.
The growth bucket aims for capital appreciation
The growth bucket typically contains more aggressive and higher-risk investments like stocks that aim for capital appreciation over the long run. Investments are chosen based on their potential for generating higher returns to combat inflation. As people live longer in retirement, growth investing ensures savings last by outpacing inflation. Having a growth-focused bucket allows retirees to maintain their principal savings and pass on wealth.
The income bucket provides steady cash flow
The income bucket contains more conservative assets like bonds that generate interest income. This bucket funds living expenses in the early years of retirement. Income investing prioritizes assets that pay dividends and distributions at regular intervals. This creates a reliable cash flow without selling growth investments at inopportune times. The income bucket gives retirees access to funds they need while waiting for the growth bucket to mature.
Allocation between buckets depends on risk tolerance
The allocation between the growth and income buckets depends on each investor’s risk tolerance and income needs. More risk-averse retirees may put 75% in income assets and 25% in growth, while more aggressive retirees may do a 50/50 split. Rebalance regularly between the buckets – if growth investments surge, shift gains to the income bucket. The 2 bucket system creates a straightforward framework to balance retirement finances.
The 2 bucket retirement investment strategy divides assets into a growth bucket for capital appreciation and an income bucket for steady cash flow. This balanced approach helps retirees generate returns while managing risk.