Start with Why

Why do we save for retirement? Because one day, our lives will shift from earning to enjoying, from building to being. But here’s the challenge: the financial world doesn’t always play nice. Market crashes, inflation, and economic downturns can strike when we least expect them. The question isn’t just, “Will we have enough money to retire?” but, “Will we have the tools to navigate uncertainty and still thrive?”

Enter the **Bucket Method** — a simple, flexible approach to ensure your money works for you, no matter what the market throws your way.

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How It Works

The bucket method divides your retirement savings into three distinct "buckets," each with a specific purpose. Think of it like preparing for a journey:

**The Short-Term Bucket (Bucket 1)**: This is your safety net — the cash and short-term bonds you’ll need for immediate expenses. It gives you stability and peace of mind.
**The Medium-Term Bucket (Bucket 2)**: Here’s where you plan for the next leg of the journey. Defensive **[investments](/services/investments)** like bonds, gold, or real estate protect you from moderate risks.
**The Long-Term Bucket (Bucket 3)**: This bucket holds your growth engine — stocks and aggressive investments designed to fuel your future.

When markets are calm, you draw from buckets two and three. But when storms hit, bucket one takes the pressure off, letting your long-term investments recover. ---

Real Stories from History

Let’s see how this strategy might work in real-life scenarios. Meet Olivia, an investor who retired in 2006 with 2,000,000 CZK. Her goal: withdraw 100,000 CZK annually, adjusting for inflation, while ensuring her portfolio lasts through retirement.

The 2008 Financial Crisis

The financial crisis of 2008 was a storm unlike any other. Markets plummeted, fear soared, and many retirees saw their **[savings](/services/investments)** dwindle. But not Olivia. Thanks to her bucket portfolio, she weathered the storm. Here’s how:

**2006-2008**: In the calm before the storm, Olivia withdrew from her long-term investments (Bucket 3), allowing her short-term funds to stay intact.{" "}
**2008 Crash**: When the markets crashed, Olivia switched to Bucket 1, using her short-term cash reserves while giving her long-term investments time to recover.
**The Outcome**: By the end of 2023, after 18 years of withdrawals, Olivia still had 1,290,195 CZK left — and had already withdrawn over 2,000,000 CZK.

![Bucket method investing in The 2008 Financial Crisis](/images/blog/articles/2024/11/bucket_method_portfolio_1.png) The bucket method didn’t just preserve her finances; it preserved her peace of mind.

The Golden Era: 1980-2010

Imagine if Olivia had retired in 1980 instead. This period, marked by significant market growth, was a golden age for investors.

Over 31 years, Olivia withdrew 5,500,000 CZK for her expenses.
By 2010, her portfolio was worth over 7,000,000 CZK, thanks to steady long-term growth.

![Bucket method investing in The Golden Era: 1980-2010](/images/blog/articles/2024/11/bucket_method_portfolio_2.png) Why did this work so well? Because the early years of her retirement saw strong market returns, boosting her long-term investments (Bucket 3).

The Toughest Test: 1970-2000

But what if Olivia retired in 1970, during one of the toughest economic periods? High inflation and market downturns made this a challenging time for retirees.

Despite using the bucket method, Olivia’s portfolio ran out by 1989. Why? The early years saw three significant market drops, forcing her to withdraw from long-term investments when they were already down.

![Bucket method investing in The Toughest Test: 1970-2000](/images/blog/articles/2024/11/bucket_method_portfolio_3.png) This phenomenon is called **Sequence of Returns Risk**: when poor returns hit early in retirement, they can devastate your portfolio’s longevity. But even in tough times, the bucket method minimizes the damage, providing structure and flexibility. ---

What We Learn

The bucket method isn’t about predicting the future. It’s about being prepared. It acknowledges that the market has ups and downs, but your life doesn’t have to follow the same rollercoaster. By separating your money into short, medium, and long-term needs, you create a system that works for you — in good times and bad. So, why the bucket method? Because it gives you control. It allows you to live the retirement you planned for, without fear of the unexpected. _Article inspired by the work of **Martin Cimprich** from edwardinvest.cz._

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