Three-Bucket Strategy To Beat Retirement Jitters

Retirement often looms as the elusive golden phase of life, promising rest, travel, and the freedom to enjoy the fruits of your labour. But for many, the thought of outliving their savings or managing their investments for an unpredictable future can turn that golden phase into a source of stress.

According to a 2024 survey by the National Institute on Retirement Planning, a staggering 68% of Indians aged 45–60 feel financially unprepared for retirement.

Planning for retirement is not just about accumulating wealth, it is about ensuring that wealth lasts through the retirement years. Unlike other financial goals, retirement savings must withstand decades of inflation, medical expenses and market volatility.

A 2024 report by Max Bupa Health Insurance revealed that 60% of retirees in India experience financial strain due to unexpected healthcare costs. Nikhil Kothari, director of Etica Wealth, emphasises the importance of a strategy that balances safety, liquidity and growth.

"Retirement is a long-term journey, often stretching over 30 years or more," says Kothari. "You can't afford to be overly conservative, nor can you gamble everything on equities."

He adds that the common questions that come up are, "Will I be able to retire comfortably? Will I be able to maintain the same lifestyle? Will I be able to spend the money the way I was spending now in terms of my lifestyle?"

The Three-Bucket Strategy breaks down retirement savings into three categories: a short-term bucket, a medium-term bucket, and a long-term bucket. According to Kothari, each of these serves a distinct purpose and caters to different time horizons and risk profiles.

The first bucket is focused on providing immediate liquidity to cover essential living expenses over the next few years. The goal of this bucket is to ensure that a retiree's daily expenses are covered without the need to touch long-term investments.

It should typically be invested in low-risk, low-return assets like debt funds or fixed deposits. This ensures that even during market downturns, the retiree has enough funds for basic needs without worrying about selling equities at a loss.

The second bucket is aimed at medium-term growth, with a time horizon of five to 10 years. While the primary goal here is not immediate access to funds, the investments should generate enough growth to keep pace with inflation and provide a reliable source of income in the near future.

This bucket typically includes hybrid funds that combine both debt and equity, providing a balance between stability and growth potential. According to a 2024 study by Morningstar, hybrid funds have returned an average of 10% annually over the last five years, making them a viable option for retirees looking to grow their corpus steadily without taking excessive risks.

The third bucket is for long-term growth. This is where the bulk of retirement savings should ideally be invested, as it aims to provide wealth accumulation over 10–20 years or more. Investments in this bucket are typically equity-based, where the potential for growth outweighs the short-term risk. While equities are volatile in the short term, their long-term returns — historically averaging around 12–15% annually in India — make them an essential component of retirement planning for those with a longer time horizon.

Healthcare costs can often catch retirees off guard, leading to a financial strain that can derail even the best-laid retirement plans. A 2024 report by the Indian Medical Association revealed that healthcare inflation in India is rising at an alarming rate of 18% annually. Given this, it is crucial for retirees to plan for these increasing costs by ensuring they have adequate health insurance.

Kothari recommends that retirees maintain a comprehensive health insurance policy throughout their retirement. "Many people rely on employer-sponsored health insurance until retirement, but it's essential to port that policy to an individual plan," Kothari said. "Also, consider a super top-up health plan for larger coverage at a lower premium."

According to a 2024 report from the Pension Fund Regulatory and Development Authority, nearly 85% of Indians rely on family support during retirement. The Three-Bucket Strategy provides a way to reduce this reliance by ensuring retirees have sufficient funds in the right places at the right times.

"Balancing your assets across three buckets ensures that you're not putting all your eggs in one basket," says Kothari. "It allows you to manage risks while making sure your money grows consistently."

By dividing funds into short-term, medium-term, and long-term buckets, retirees can ensure that they have the liquidity to cover immediate needs, the growth to keep up with inflation, and the wealth to support them throughout their retirement. With the right plan in place, retirement can be everything you've dreamed of without worrying about the next financial hurdle.

As Kothari puts it, "The key to successful retirement is not just saving, but saving wisely—making sure your money works for you, every step of the way."