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  • Focuses on your cash flow needs in retirement
  • Provides a different way of thinking about the components of your portfolio and how they align with your needs
  • Increases the likelihood that you are able to maintain a strategy designed to meet the needs of a longer retirement

Today, the average 55-year-old Canadian can expect to live to the age of 84, a gain of 24.6 years since 1926. While a good reason to celebrate, it also means that Canadians are now spending nearly as much time in retirement as they do in their working lives. This poses a challenge for retirees who need to ensure their retirement savings last.

Use this planning worksheet

What is a bucket portfolio?

“Bucketing” means dividing a portfolio into three main investment time horizons: a long-term bucket, a medium-term bucket and a short-term bucket.

The goal is to insulate the long-term bucket from near-term cash flow needs, allowing the equity portion of the portfolio to remain invested longer and grow over time.

Annual retirement income is drawn from the short-term bucket, which holds several years in reserve and is topped up from the medium-term bucket. The top-up process is tailored to the investor’s unique circumstances and general market conditions.

Example of a $1 million bucket portfolio strategy

bucket portfolios diagram en bucket portfolios diagram en

The size and holdings of each bucket are determined by your initial wealth and income requirements, as well as your risk tolerance and return objectives.

Short-term – Income (1-5 years)

The short-term bucket holds cash and short-term investments for income withdrawals and emergency funds. It also helps to reduce the impact of short-term market volatility on the portfolio.

Medium-term – Buffer (6-10 years)

Holds income-generating investments, including low risk, low volatility equities for stable capital gains. This bucket serves as a buffer between the cash bucket and the long-term growth bucket.

Long-term – Growth (10+ years)

Holds growth-oriented equity funds, which are more volatile but offer higher potential for capital growth to sustain the portfolio for the later years of retirement.

The long-term bucket increases the lifespan of your retirement portfolio, helping maximize the time that a portion of your portfolio remains invested in growth-oriented securities.

Since cash withdrawals are taken from your short-term bucket, your equity securities can be left to grow for a longer period. This can be especially important if stock markets experience negative returns in the early years of your retirement.

Step 1

Determine how much annual cash flow you will need from your retirement portfolio. Guide: Estimate your annual expenses in retirement, and from these deduct other sources of cash flow you'll have (e.g. pensions and guaranteed income.) The shortfall, if any, is the annual cash flow you'll need from your bucket portfolio.

Step 2

Ask yourself how many years of cash flow you want to have readily accessible, including emergency funds. Guide: The short-term bucket is not meant to grow. It is designed to provide you with a higher degree of certainty that your cash flow needs will be met for the next few years (typically 3-5 years of cash flow).

Step 3

Create a "buffer" between short-term cash flow needs and long-term growth investments. Guide: A portfolio's longer-term sustainability could be hurt by selling growth-oriented investments on short notice. The medium-term bucket allows your growth bucket to remain invested. It holds more conservative investments than the growth bucket and can be used to top up the short-term bucket if needed (usually 3-7 years of cash flow).

Step 4

Invest the remainder in growth-oriented securities. Guide: The long-term growth bucket represents the remainder of your portfolio and is comprised primarily of equities. It will vary in size depending on the size of your total portfolio and the number of years of income allocated to the short- and medium-term buckets.

Explore other ways to create a stable income in retirement. Or, talk to your financial advisor to learn more about the bucket portfolio approach. Ready to start planning your bucket portfolio? This worksheet can help.


Last reviewed: January 1, 2023

This information has been provided by RBC Global Asset Management Inc. (RBC GAM) and is for informational purposes only. It is not intended to provide legal, accounting, tax, investment, financial or other advice and such information should not be relied upon for providing such advice. The information contained herein is from sources believed to be reliable, but accuracy cannot be guaranteed. Please consult your advisor and read the prospectus or Fund Facts document before investing. There may be commissions, trailing commissions, management fees and expenses associated with mutual fund investments. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. RBC Funds, BlueBay Funds and PH&N Funds are offered by RBC Global Asset Management Inc. and distributed through authorized dealers.

How the bucket approach works

Image of three buckets, one for long-term investing, one to generate income over the mid-term and one for cash