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Our early retirement bucket investment strategy

Joe at Retire by 40 recently posted The RB40 Bucket Strategy. Head over to read how Joe has adapted it for his own portfolio.

Having read Joe's post, I wondered how my own early retirement finances shape up in terms of the Bucket Retirement Strategy. It's been a worthwhile exercise because it made me realise there are a few tweaks that I should make. But before I get to that, for those who haven't come across the Bucket Retirement Strategy before, here's a quick explanation.

What is the Bucket Retirement Strategy?

Devised by Harold Evensky in the 1980's, his idea was to create a retirement investment strategy that allowed clients to stay calm during market downturns and not be forced to sell depleted shares to fund withdrawals.

Maybe I'm looking at this too simply, but the strategy seems pretty obvious - in essence, it says to hold enough cash to weather a downturn. To be honest, this doesn't sound like rocket science - perhaps it was it's simplicity and the "bucket" analogy that caught people's attention.

Back to the strategy - the cash bucket consists of safe, liquid funds that are drawn down to fund living expenses. 1 - 2 years (some articles talk of up to 5 years) of annual spending is said to be sufficient to avoid the risk of having to sell investments during a downturn to fund living expenses.

The second bucket contains mostly growth orientated investments, such as stocks. This bucket will provide growth and income for the longer term and can be used to top up the cash bucket.

Others have subsequently added more buckets to the model. A three bucket system might look something like the diagram, although the make up of each bucket should be tailored to an individual's circumstance and risk appetite/tolerance. More granulation could be added with a fourth or fifth bucket. That said, in a recent interview, Evensky said that he still prefers the simpler two bucket approach, and that a year's worth of cash is plenty to protect investors from market volatility.

The IRetiredYoung Bucket Retirement Strategy - the facts

In truth, I hadn't heard about the bucket retirement strategy until I read Joe's post, so it's interesting to see my early retirement finances represented in bucket form.

I have 3 main buckets and 2 minor buckets. I consider the two minor buckets as temporary, and they will hopefully disappear in the short to medium term with the funds reallocated to low cost ETFs - the Premium Bonds at a time when shares look to be attractively priced and the speculative land when a buyer is found. So for this post, I'll focus on the 3 main buckets.

Our cash bucket, at only 5-6 months of annual expenditure is less than Evensky recommends. I've been comfortable with this because our rental property produces dependable income that covers our normal annual expenditure. In general, we use the cash bucket for our next month's living costs, and it gets replenished monthly from our property rental income. Most of this cash can therefore be thought of as our emergency fund or our "for something special" fund. I've ignored the Premium Bonds when talking cash because, although they are as good as cash, I don't intend to keep them as they don't give a good return.

The rental property bucket is our income bucket. I tend to say that we can live entirely off this income, but I've just checked and while that's true for some years, there are other years where it's not the case. Cumulatively for our almost 6 years of retirement, we've actually spent more than our property rental income - a big reason being because we bought the campervan. However, because Sally continued working for a while after I retired, her earnings covered the shortfall. In summary, for normal spending years, our rental property should continue to provide a reliable income which covers all or at least the bulk of our expenditure, but perhaps we need a buffer for an occasional overspend.

Our third bucket is our long term bucket and consists of whole world ETFs split into 80% equities and 20% bonds. I may look to move to 100% equities at some point as I feel our rental properties take the place of bonds in our overall portfolio. Approaching the end of year six of early retirement, we haven't yet touched this bucket.

Critiquing the IRetiredYoung Bucket Retirement Strategy

Bucket 1 - the cash we use for our day to day spending and our emergency fund: I thought that running a below bucket retirement strategy cash holding of 5-6 months of annual expenditure was fine, but today's exercise have made me think it's a little skinny. The realisation that our expenditure over the past (almost) 6 years has been more than our property rental income is making me think that we should hold closer to a years worth of cash.

Bucket 3 - holds long term investments: the key here is to have our Buckets 1 and 2 set up so that, in the event of a downturn, we don't have to touch Bucket 3 and can instead leave it's investments to ride out any downturns. As mentioned earlier, I think we need to increase our cash holding in Bucket 1 to give us more certainty that we won't have to touch Bucket 3 in a downturn. I've also said that I might look to move this to 100% equities, but it's not an urgent thing.

Bucket 2 - our income producing assets: this works well because it provides a dependable income that, with the odd exception, is pretty much all we use to live on. However, it is also the bucket where I have a question mark because there are pros and cons to the property portfolio.


  1. The property investments give us a reliable income - almost like a monthly salary. Because it covers all/almost all of our income requirements, it means we don't have to worry about stock market cycles/fluctuations or sequence of returns issues.

  2. Back in 2021, I assessed that our total property return (income and capital appreciation) was averaged 9.1% p.a. which sounded OK to me and puts it on this pros list. However, I also calculated that if we'd invested the same funds in the S&P500, our return would have been higher (so maybe the return should also be on the cons list?).


  1. Property is not a liquid asset. If we needed cash quickly, we couldn't get it from our property portfolio - it would be a matter of 2-6 months to convert to cash. Certainly not as easy as selling a few shares.

  2. The size/lumpy nature of property gives us less flexibility to manage Capital Gains Tax compared to alternatives such as ETFs, equities and bonds (I'm thinking of UK GCT rules in this instance). If we sell, we will pay more tax than if we sold ETFs for example.

  3. There are tax efficient schemes for shares (ISAs in the UK) but not an equivalent for real estate.

  4. Property rentals are more effort, although we do use a management agent which takes care of a lot of the work...for a cost.

  5. In France, there is a wealth tax on property. We have an exemption for our first five years of residency, but will have a sizeable property wealth tax bill each year after that.

  6. Lack of diversification. Our property is all in the UK, so it's not geographically diversified. And by definition, it is all property, so no sector/industry diversification either.

Regarding the cons list, the tax items (cons 2 and 3) are probably a moot point in our case, because we already have the properties so it's too late to decide we don't like/want these issues.


Even though I wasn't previously familiar with the Bucket Retirement Strategy, I was effectively doing my own version of it anyway. However, this exercise has been worthwhile. It has:

  • highlighted that our cash holdings are perhaps a little too skinny, and we should increase them to closer to one year of expenditure.

  • reminded me that our investment in Premium Bonds was because equities didn't look attractive, so when they do look better we must remember to switch this investment.

  • It's also made me think again about our property portfolio. There are many plus points to it (one being that Sally is 100% in favour of the property portfolio) but, as the cons list shows, there are also many downsides/inefficiencies compared to alternative investments. However, it is complex to exit/reduce efficiently from a tax perspective, and particularly so while we are resident in France. However, it's an area that I need to keep under review.

I've found the most interesting part of the Bucket Retirement Strategy has been that the process of allocating our investments to the respective buckets has made think about our investments. In turn, that has instigated a couple of actions that I want to take and reminded me to continue to think about the property investments.

Set and forget investing has its place, but taking some time, perhaps on an annual basis, for a "does this still make sense?" review is a good idea too.


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