Your Three ‘Buckets of Money’

Most Federal Employees make investment decisions on an account-by-account basis. But before you can make good choices for specific investments, it’s important to look at the big picture for retirement investing.

When it comes to investing for retirement – most Federal Employees make investment choices on an account-by-account basis.

They’ll look at each account individually and then decide how to invest it.

But is this really the best way to do things?

Most Federal Employees have never taken a step back to look at the big picture of their retirement investing.

The Big Picture of Investing for Retirement

When I meet with my Federal Employee clients, we talk about looking at their retirement investments as ‘Buckets of Money’. When they hear this idea, it’s often an ‘ah-ha’ moment. It makes sense to them, they had just never thought of looking at their investments this way.

While you may have retirement savings in a variety of different accounts – before you can make the best decisions on an account-by-account basis, it’s important to look at the big picture first.

Once you have a good idea of how you want your retirement savings working for you – then you’ll be in a better position to make specific investment choices.

Your Three Buckets of Money

Let’s start by looking at your retirement assets as though they were grouped into three different ‘Buckets’…

  • Your Cash Bucket – This is where you keep a cash reserve (very important!) and where you’ll be drawing the money you need to live in retirement each month
  • Your Growth Bucket – Here we focus on growth and helping your overall retirement assets outpace inflation for the long haul
  • Your Income Bucket – Money in this account is focused on preservation, and providing an income for you in retirement

Let’s take a closer look at each Bucket. Each Bucket serves a different purpose and they also have different requirements.

Let’s start with what is the most important Bucket – but also the most overlooked…

Your Cash Bucket – A Solid Foundation

Your Cash Bucket is where you’ll go each month to provide for your living expenses in retirement. Most people totally underestimate the amount of money they need in their Cash Bucket – and end up shooting themselves in the foot.

What do we mean by ‘Cash’? We’re not talking about paper money – we’re talking about money in savings accounts, checking accounts, money market accounts or other cash equivalents – but there are certain requirements you’ll want your Cash Bucket money to meet.

Money in Your Cash Bucket Must…

  • Be accessible any time you want it
  • Be immediately available without having to sell an investment to get it
  • Be available to take out without incurring taxes and/or penalties to get it

A well-funded Cash Bucket serves as the foundation of your Buckets of Money. We’ll be talking more about the importance of the Cash Bucket in future articles, but let’s go on to the next Bucket which is…

Your Growth Bucket – Inflation-Proofing for the Long Haul

This is where you’ll be investing retirement savings for growth and to help make sure you out-pace inflation over the long-haul.

Money in Your Growth Bucket Should…

  • Be money you don’t need for the next 5 years
  • Be invested to take as much risk as you ‘need’ to take to achieve your goals
  • Be invested to help your overall portfolio out-pace inflation over your retirement

You’ve probably filled out a risk-tolerance questionnaire before, or you have an idea of how much risk you feel ‘comfortable’ taking.

But have you ever thought about how much risk you ‘need’ to take?

What if the risk you’re ‘comfortable’ with taking is more risk than you need to achieve your retirement goals? What if you are close to having enough money to live the lifestyle you want in retirement?

Or consider the flip-side…what if the amount of risk you’re ‘comfortable’ taking isn’t enough to achieve your goals?

To be sure, it’s important to have a feel for how much risk you’re ‘comfortable’ with – but it’s also critical to know how much risk you ‘need’ to take to achieve your retirement goals. And for most people, they are different numbers.

Money in your Growth Bucket should be invested based on how much risk you ‘need’ to take to achieve your long term retirement goals.

Let’s take a look now at the third bucket…

Your Income Bucket – Preservation and Income in Retirement

Money in your Income Bucket should be focused on preservation of principal and providing an income.

Your Income Bucket money should…

  • Be invested in something low-risk
  • Be invested to provide a regular income
  • Be invested to preserve principal

Depending on the investments you choose – you may have income coming in different forms, and at different intervals. For example, some of your investments in the Income Bucket may provide income on a monthly basis, while others may pay on a quarterly basis, semi-annual basis, etc.

The Three Buckets Working Together

While each of the three Buckets of Money have different characteristics – they all work best when they’re all working together.

Let’s start with the Cash Bucket. What does having money in your Cash Bucket give you?


Money in your Cash Bucket gives you time before you need to turn to your Growth or Income Buckets to get more money.

If you have three months of living expenses in your Cash Bucket, you have three months before you need to turn to your Growth or Income Bucket and sell an investment or take income to get more money. If you have six months of living expenses in your Cash Bucket – you have six months before you need to turn to your Growth or Income Bucket.

Why is this important?

It gives you choices – it puts you in control. When you have a well-funded Cash Bucket, you can afford to wait until it’s a good time to take money from your Growth or Income Buckets.

And the more money you have in your Cash Bucket, the more time you have on your side.

Keep in mind, you don’t have to wait until your Cash Bucket is empty to make investment decisions. You can make them whenever it’s best for your personal situation, the choice is yours. But having enough money in your Cash Bucket means that you won’t be ‘forced’ to sell out of an investment just to cover your monthly living expenses.

Eventually, you’ll need to turn to your Growth or Income Bucket to refill your Cash Bucket.

Depending on the market, it may be a good time to take money from your Growth Bucket to refill the Cash Bucket. But what if the market isn’t doing so well? Then it might be a good time to turn to your Income Bucket and let your Growth Bucket investments ride.

Have You Ever Thought of Your Investments This Way?

Most Federal Employees I talk with have never looked at their investments this way. And if you’ve never thought about your investments this way –what else might you be missing?

Over the years, I’ve had the opportunity to help individual Federal Employees through the entire retirement process. While every person is unique – I noticed that many people were making the same mistakes and missing several steps in planning their retirement. This is something I help my clients with – but I wanted to find a way to share this knowledge with more people.

About the Author

Micah Shilanski is a Certified Financial Planner™ professional who specializes in helping federal employees get the most out of their retirement benefits. Micah helps his clients with tax planning, retirement planning, federal retirement planning, estate planning, and investment advice. Plan Your Federal Retirement is a dba of Shilanski & Associates, Inc., an Alaska Registered Investment Advisor, with securities offered through Summit Brokerage Services, Inc., Member FINRA/SIPC.