How to Invest Once You Retire: A 3-Bucket Strategy to Fund 30+ Years of Retirement
Have you ever wondered how you should invest your money once you stop working? What worked while you were accumulating wealth might not work once you start drawing income. That's where most retirees go wrong—they underestimate how much their strategy needs to evolve after their final paycheck.
👉 Want to learn how to retire without the worry of running out of money in retirement? Click here to watch this video
Why listen to me?
I’ve helped retirees manage tens of millions of dollars over my career, and one thing is always true: the right investment strategy is what determines if you’ll have peace of mind or panic attacks in retirement. I'm a CERTIFIED FINANCIAL PLANNER™ and founder of Lock Wealth Management, and I specialize in turning savings into a sustainable income stream that lasts through inflation, volatility, and decades of life after work.
In this article, I’ll walk you through the same “bucket strategy” I use with clients to fight sequence of returns risk, structure a reliable income stream, and grow wealth long-term.
Key Point / Summary
- Sequence of returns risk is the #1 threat to early retirement years.
- A 3-bucket investment plan helps organize your assets by timeline and risk level.
- The goal: Preserve income, maintain flexibility, and grow wealth over time.
What is Sequence of Returns Risk?
Sequence of returns risk refers to the danger of receiving poor investment returns early in retirement, especially when combined with withdrawals.
Real-Life Scenario:
If you start retirement in a bear market and are drawing 4–5% of your portfolio for income, your chances of running out of money increase dramatically—even if your average return over time looks great on paper.
In my experience, clients who don’t plan for this risk often face serious anxiety, especially after the first market correction in retirement.
The 3-Bucket Retirement Strategy
The bucket strategy breaks your portfolio into three parts, based on when you’ll need to use the money. This protects your lifestyle now and positions your money for long-term growth.
Bucket 1: Short-Term (0–5 Years)
Purpose: Cover income needs not met by Social Security or pensions.
Assets: High-yield savings accounts, money markets, short-term Treasuries, CDs, fixed annuities.
Target Yield: 4–6% (thanks to today’s higher interest rates).
Why It Matters:
This bucket provides stability. If the market drops, this bucket keeps you from selling your stocks at a loss to fund your lifestyle.
Bucket 2: Mid-Term (5–15 Years)
Purpose: Replenish Bucket 1 and bridge mid-retirement expenses.
Assets: Balanced portfolios of bonds, dividend-paying stocks, longer-term CDs, and annuities.
Goal: Steady growth and income.
Why It Matters:
It’s your “refill tank” for the short-term bucket, without needing to touch your long-term growth assets.
Bucket 3: Long-Term (15+ Years)
Purpose: Protect against inflation and ensure portfolio longevity.
Assets: Broad market stock funds, real estate, alternatives.
Why 15+ Years?
The S&P 500 has never lost value over any rolling 15-year period in history. That time horizon gives stocks the room they need to recover from even the ugliest bear markets.
How to Maintain the Buckets
As you draw down Bucket 1, use interest, dividends, and occasional principal from Bucket 2 to refill it.
Every 7–10 years, sell a portion of Bucket 3 (growth assets) and move those funds into Buckets 1 and 2 to reset the plan.
Target Allocation Guide:
Bucket 1: 2–3 years of income
Bucket 2: 30–50% of portfolio
Bucket 3: 30–40%+ for long-term growth
In my practice, this strategy gives clients the confidence to weather market volatility without sacrificing their lifestyle.
What If You’re Retiring Today With $1.5M?
Let’s say you need $4,000/month from your investments, adjusted for inflation.
Example Breakdown:
Bucket 1: $250,000 – Treasuries, CDs, annuities, HYSAs
Bucket 2: $600,000 – 60/40 mix of dividend stocks and bonds
Bucket 3: $650,000 – Broad index funds and growth equities
At a conservative blended return, this portfolio structure not only gives you the income you need but also a system for ongoing replenishment. It reduces stress, allows for inflation protection, and helps you stay invested long enough for growth to compound.
Real-World Example:
Meet Dave and Carla, both 65, retiring with $1.5 million in savings and $4,500 in monthly combined Social Security. Their monthly spending goal is $8,000. That leaves a $3,500/month gap to fund from investments. We place $250,000 in Bucket 1 to cover 5 years of this gap ($42,000/year), all in ultra-safe assets. $600,000 goes into a moderate income portfolio for years 6–15. The remaining $650,000 is invested in diversified stock funds, REITs, and growth ETFs for long-term inflation protection. This structure provides confidence, predictability, and strategic flexibility.
What to Do Next
Run a retirement income projection to identify how much you’ll need to withdraw yearly.
Segment your portfolio into the 3 buckets based on timing and risk.
Refine your withdrawal plan with a professional to coordinate taxes, RMDs, and account sequencing.
👉 Want to learn how to retire without the worry of running out of money in retirement? Click here to watch this video
FAQ
Q: What happens if rates go down again?
A: Lock in multi-year CDs or annuities now. Laddering can also help reduce reinvestment risk.
Q: Isn’t 40% stocks too much in retirement?
A: Not if you’re planning for 30+ years. You need growth to beat inflation, and long-term history supports stocks.
Q: Can this work with $500K or less?
A: Yes, the concept scales. The more important part is aligning income timing with risk.
Disclaimer: Case studies are hypothetical and do not relate to an actual client of Lock Wealth Management. Clients or potential clients should not interpret any part of the content as a guarantee of achieving similar results or satisfaction if they engage Lock Wealth Management for investment advisory services.