Buckets for Retirement Planning

I also saw a recent article. If we're looking at the same article, it was the following in the Wall Street Journal: http://online.wsj.com/article/BT-CO-20100122-706836.html?mod=WSJ_latesth...

Buckets are basically a metaphor and a way of segmenting retirement resources or assets according to the needs, risk tolerance and overall financial plan of the retiree. The segmentation is intended to provide a plan for distributing or "drawing down" the assets during retirement.

As a highly simplified example, a person with $600,000 in retirement assets may choose to separate that money into 3 different buckets:

1) $200,000 for near-term (next 4 years) liquidity and spending needs. This amount would remain in highly liquid, conservative investments so that it does not fluctuate and is readily available for draw-down / spending.

2) The next $200,000 might be placed in fixed income investments and be targeted for draw down during the subsequent 4 year period. The investment profile can presumably be a bit more aggressive since the time horizon is longer.

3) The remaining $200,000 is in the longest term bucket, and as a result, might be invested most aggressively in equities, etc.

This is a simplified example. Note that there are many critics of the bucket approach. Also note that this approach really does nothing to mitigate longevity risk.