The Bucket Approach to Building a Railroad Retirement Portfolio

How to Draw Down Your Retirement Portfolio Using a Bucket Strategy

After decades of working on the railroad, many retirees share the same concern: How do I make my nest egg last while reducing stress in retirement? One of the most effective approaches financial planners use to answer that question is called the bucket strategy.

The bucket strategy is designed to provide dependable income, manage market risk, and help retirees avoid selling investments at the wrong time. Below is a simple breakdown of how it works and why it can be especially useful for railroad retirees.

The Three-Bucket Approach Explained

The bucket strategy divides your retirement portfolio into three distinct buckets based on when the money will be used.

Bucket 1: Short-Term Spending (1–3 Years)

This bucket is used to fund your day-to-day living expenses.

Holds one to three years of income needs (three years is often ideal)
Invested in cash and cash-like assets such as money markets, CDs, or short-term savings
Designed to be liquid and stable—not growth-oriented

How to calculate it: Start with your annual expenses, then subtract guaranteed income such as Railroad Retirement benefits.

Example:

Annual spending: $100,000
Railroad Retirement and other income: $60,000
Annual shortfall: $40,000

With a three-year cushion, Bucket 1 would hold $120,000 ($40,000 × 3).

This bucket protects you from needing to sell investments during market downturns.

Bucket 2: Intermediate-Term Income (5–8 Years)

Bucket 2 supports Bucket 1 by generating income over the medium term.

Holds five to eight years of income needs
Invested in income-producing assets such as:
- Bonds and fixed income
- Dividend-paying stocks and ETFs
- Utilities or other stable income sectors

Using the same example, if $40,000 per year is needed and you plan for eight years, Bucket 2 would contain $320,000.

Income from this bucket is periodically used to refill Bucket 1, allowing spending to continue smoothly.

Bucket 3: Long-Term Growth

This is your growth engine.

Invested for long-term appreciation
Includes diversified assets such as:
- Growth stocks
- Broad market funds (e.g., S&P 500)
- Equity ETFs

This bucket is not touched for current spending. Over time, as it grows larger than the other buckets, gains are harvested and used to replenish Bucket 2.

How the Buckets Work Together

The system functions as a flow:

Bucket 3 (growth) → replenishes Bucket 2 (income) → replenishes Bucket 1 (spending)

With periodic rebalancing, this structure allows retirees to maintain income while minimizing the emotional stress of market volatility.

Why the Bucket Strategy Works in Retirement

Reduces the need to sell assets during market declines
Helps manage sequence-of-return risk
Provides predictable income for daily expenses
Creates a clear, organized retirement income plan

For many railroad retirees, this approach adds clarity, confidence, and peace of mind.

Final Thoughts

The bucket strategy is a powerful way to create a retirement income roadmap that balances stability and growth. It’s a core component of the Highball Advisors Railroad Retirement Whiteboarding Process, designed specifically for railroad employees who are at or near retirement.

If you’re approaching retirement and want a clearer plan for drawing down your savings, this strategy is well worth exploring.

Until next time—stay safe, stay on track, and take care.

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Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. Highball Advisors encourages you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Highball Advisors, and all rights are reserved from Highball Advisors, and all rights are reserved.