How to Organize Sustainable Retirement Distributions

Each individual’s retirement income plan should be tailored specifically to their needs by coordinating DC plan distributions with decisions about when to take Social Security.

When saving and investing money for the long-term future, the saying “don’t put all of your eggs in one basket” is commonly used.

This mantra holds true whether an individual is accumulating assets for retirement or planning how to efficiently distribute those assets in retirement. Essentially, individuals need to be able to diversify their portfolio because it is nearly impossible to predict what sector or asset class will be the next leader or laggard.

While income diversification in retirement is similar to investment diversification during working and saving years, there are some differences. A prudent investor will formulate a strategy that protects their income and ensures market fluctuations have little impact on their standard of living. Identifying the specific purpose for each investment one owns, or intends to make, is a wise first step.

The Bucket Approach

To help folks plan for sustainable retirement distributions, one option is a bucket approach. Typically, this will entail setting out several buckets, as follows: Short-Term Income, Long-Term Income, Long-Term Growth, and Protection.

This allows the individual to compartmentalize investments for various phases of retirement and thereby make investment decisions with purpose. Ultimately, the soon-to-be retiree can make informed and confident investment decisions because they have identified the often overlooked investment aspects of risk appetite and time horizon. 

Each person’s case should be tailored specifically to them by coordinating future distributions along with decisions about when to take Social Security—and which pension payout option to elect. Financial professionals can be a big help to individuals throughout this process.

The Short-Term Income Bucket

There should be little, if any, risk in the Short-Term Income Bucket. Ideally, the individual will be able to set this bucket up late in the accumulation phase. This bucket is going to provide income for the first few years of the distribution phase.  

There are several choices for allocating assets in the short-term income bucket. One could allocate this bucket to cash, or by laddering certificates of deposit, laddering individual bonds, or laddering fixed annuities. Other options include a single premium immediate annuity, an indexed annuity with short-term payout periods, or a combination of these.

The Long-Term Income Bucket

One’s Long-Term Income Bucket will pick up where the Short-Term Income Bucket leaves off. Generally, investors should be willing to take on a little bit of risk in this bucket because the investment horizon is longer than the Short-Term Income Bucket.

Again, there are numerous investment choices when allocating to this bucket. Some of the choices are the same as in the Short-Term Income Bucket, but here one can also use annuities with income riders. These work similar to a pension benefit; they pay the individual (and potentially the spouse) an income stream in the future that cannot be outlived. These income riders are packaged in a lot of different “flavors.” If this is something of interest, individuals should make sure to know exactly what they’re getting, the cost, and restrictions they face.

The Long-Term Growth Bucket

The Long-Term Growth Bucket should be considered to have an open-ended investment horizon. This bucket is established to help guard against inflation, unforeseen needs, or additional wants. Because the individual sets aside enough money in the other buckets to take care of basic living expenses, this bucket is meant to be truly liquid. 

Assuming the investor is comfortable with the risk, it is generally suggested to take an aggressive investment allocation within this bucket, again because the investment horizon is long, and withdrawals will likely be intermittent and relatively small. Since distributions from this bucket will likely not stress this bucket in down markets, investing aggressively usually is not uncomfortable. Individuals should aim to diversify this bucket across all economic sectors based on market trends and reevaluate the investments monthly.


One bucket not covered above is the Protection Bucket. Individuals can use this bucket to protect against pre-mature death, loss of Social Security income when the first spouse passes away, and long-term health care expenses. Mitigating these risks can get much more complex in planning. Unfortunately, some folks simply cannot afford to mitigate these risks as much as they would like.

It is important to understand there are so many variables that can affect the percentage of retirement assets devoted to each bucket; income needs, coordination between nest egg distributions and other income sources, and assumed rates of return, to name a few. There is no “one size fits all.” The virtues of diversification are ultimately rooted in mitigating risk. By utilizing a bucket approach, investors can properly diversify their nest egg to achieve sustainable income in retirement, and control their risk.

*Note from the editor

Ben Harvey is the President of Pathway Financial Planning, a financial planning firm based in Connersville, Indiana, and Oxford, Ohio. He is an investment adviser representative of, and securities and advisory services are offered through, USA Financial Securities Corp., Member FINRA/SIPC. 

This feature is intended to provide general information only, does not constitute legal or tax advice, and cannot be used or substituted for legal or tax advice. Any opinions of the author do not necessarily reflect the stance of Asset International, Strategic Insight or its affiliates.