section 1 - The American College Online Learning Center

(2) When initially established, the first bucket contains cash and cashequivalents and is intended to be utilized and contain sufficient funds tomeet spending over the first five years of retirement.(3) The second bucket is intended to meet spending needs in years six tofifteen of retirement. It contains mostly fixed income securities, which arelikely to experience greater volatility than cash, but, because they are inthe second bucket, the retiree has a longer time period to ride out marketswings.(4) The third bucket contains mostly equities, a traditionally more risky andvolatile asset class. It is intended to meet expenses in the years beyondthe fifteenth year of retirement, again providing opportunity to ride outswings with the intention of reaping the potential rewards.(5) These buckets will need to be redistributed over time. At a regularfrequency, the first bucket will need to draw from the second to continue tomeet its intended use of covering expenses over the next five-year period.(6) For the second bucket to continue to meet its intended use, it will need todraw from the third.(7) Should market returns create sufficient balances to meet each bucket’sobjective, redistribution among buckets would not occur.(8) The balances of each bucket would be analyzed at a regular frequency,and, if a certain target balance is not met, then a redistribution would occur.3. In actuality, the bucket approach is really a specific way of implementing systematicwithdrawals.a. Both funds primarily rely on self-management of assetsb. Both funds call for the systematic draw-down of assets to create retirement incomec. The bucket approach refines how assets are invested to target them for meetingspecific timing and budgeting goals4. Example: Patricia sees her retirement as a dynamic experience divided into a period ofbudget items needed for a high degree of activity (the so-called “go-go” years). Then she6.16