Bucket Strategy vs. Income Laddering: What Works Best During High Inflation?

Understanding Retirement Income Strategies in an Inflationary Environment

Retirees today face a challenge that hasn’t been this significant in decades: persistent inflation. Rising prices affect everyday living costs, long-term care, travel, and even the basics like food and utilities. For high-net-worth retirees and pre-retirees, a key question arises:

Which retirement income strategy best protects wealth during inflation— the bucket strategy or income laddering?

As a fiduciary financial advisor, my role is to simplify these approaches, highlight the pros and cons, and help you make confident, informed decisions.

What Is the Bucket Strategy?

The bucket strategy divides retirement assets into different “buckets” based on time horizons:

• Short-Term Bucket (0–3 years): Cash and liquid investments to cover immediate expenses.
• Medium-Term Bucket (3–10 years): Bonds or conservative investments to replenish the short-term bucket.
• Long-Term Bucket (10+ years): Stocks and growth assets designed to outpace inflation.

Pros:

• Provides liquidity for near-term expenses.
• Helps retirees avoid selling long-term assets in down markets.
• Growth bucket provides inflation protection over time.

Cons:

• Requires discipline and active management.
• Cash-heavy short-term buckets may lose purchasing power in high inflation.

What Is Income Laddering?

The income laddering strategy focuses on predictable income by purchasing fixed-income investments (such as bonds or CDs) that mature at staggered intervals.

For example:

• Year 1: Bond/CD matures to cover expenses.
• Year 2: Another matures, and so on.

This creates a steady “ladder” of maturing investments to fund retirement needs.

Pros:

• Provides reliable, predictable income.
• Reduces reliance on market fluctuations.
• Can help match income streams to specific expenses.

Cons:

• Rising inflation erodes the purchasing power of fixed-income payments.
• Limited exposure to growth assets may restrict long-term wealth building.

Inflation’s Impact on Both Strategies

• Bucket Strategy: Offers built-in protection through equities in the long-term bucket. However, retirees must regularly rebalance and may need to adjust allocations if inflation persists.
• Income Laddering: Provides stability, but unless inflation-protected securities (like TIPS) are included, the fixed nature of the ladder may not keep pace with rising costs.

Which Strategy Works Best During High Inflation?

There is no one-size-fits-all answer. The right choice depends on your risk tolerance, lifestyle, and retirement goals:

• Bucket Strategy may work best if you want flexibility, growth potential, and a hedge against inflation over decades.
• Income Laddering may work best if stability and predictability are your top priorities, though it should be complemented with inflation-adjusted assets.

Many fiduciary advisors recommend a hybrid approach, combining the stability of laddered income with the growth potential of long-term equity buckets.

Key Takeaways for Retirees and Pre-Retirees

• Inflation demands flexibility in retirement planning.
• Both strategies can be effective when tailored to individual goals.
• Regular reviews and adjustments with a fiduciary advisor are essential.

Final Thoughts

Whether you’re already retired or approaching retirement, the key is not just choosing a strategy—it’s ensuring it’s designed to adapt to inflationary pressures.

As a fiduciary advisor, my responsibility is to put your best interests first, helping you build a retirement income plan that balances growth, stability, and protection against inflation.

Call to Action

If you’re concerned about how inflation could affect your retirement income strategy, let’s talk. Together, we can create a plan that ensures your wealth works for you—today and in the decades ahead.

Reach out today to schedule your personalized retirement income review.