Those reading my blog for a long time know that  I am a fan of the Bucket Theory of Investing for a Retiree portfolio. How this theory works is simple.

Let me take an example. Let us say that there is a young retired couple (as they say Young in the draw down stage). Let us assume that they have Rs. 10 crores in their portfolio, and have expenses of Rs. 1L a month, and Rs. 5L per annum in vacations expense.

Their money is normally divided like this:

Rs. 70L to 90L in bucket no. 1. This bucket is the very conservative bucket and has its money to be invested in bank fixed deposits, savings accounts, money market mutual funds, short bond funds, very short bond funds and cash at home. This bucket will NEVER EVER turn negative returns. If you invest Rs. 90L…it will never ever go below 90L…


Bucket no.2 will have money for debt and some equity portfolio. It will have about 50L in a debt oriented hybrid fund. This category will have another say 50L in an equity oriented hybrid fund. Yes this looks aggressive but this couple now has 5 years expenses in bucket 1 and 6 years expenses in bucket 2. Providing for inflation lets say they have 9 years expenses in these 2 categories.

Bucket no. 3 will be more aggressive and will have an exposure to long term gilt funds, large cap funds, multi cap funds, small cap funds – and have a 10 year plus investment horizon. So say about 8 crores to be invested in this category. Do they NEED so much exposure to equity? Well that is a tough call to make. I would not put so much in equity.

For a retiree the MOST important thing is that the money should last LONGER than they last on the planet.

Assuming this was the asset allocation done in 2009, how would have I managed the withdrawals?

I would have done a SWP from the bucket no. 3 from 2009 till 2018 (at the time of writing the article). Which means the draw down is actually happening from the growth bucket. Given the rate at which equities have grown, today they would still have 2 crores in bucket 1, 2.5 crore Rs. in bucket no. 2, and about Rs. 15 crores in bucket no. 3.

Remember the couple is now 70 years of age, and has a very very aggressive portfolio. HOWEVER, they still have about 15 years expenses in the conservative buckets.

Now this couple can remove Rs. 4 crores from bucket no. 3 and buy an annuity from LIC. This would put Rs. 2L per month in their hand, reduce their exposure to equity, and give them a more safety cushion.

Now go back to where we started. Assume that the client had a rental income of Rs. 1L per month over and above the Rs. 10 crore mutual fund portfolio. How does it change things?

Well, then it is no longer a ‘retiree’ portfolio. It is an earning person’s portfolio. I would stick to the same portfolio, but at the age of 70, re-balance by taking some money off equity and putting it in more conservative boxes – 1 and 2.

I would also sell off my real estate at my age of 70 and buy an annuity from LiC. This will put more cash in my hand, and reduce my exposure to real estate – which is perhaps the most volatile asset class.

Uff! there is no one single method about using the ‘Bucket’ category of retirement fund management. Just use it as an indicator of where you are and where you want to go…

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  1. This is more of “expenditure planning” for someone retiring with 10 crore corpus today NOT “retirement planning”. His retirement is already secured.

  2. i am very scared of people who are mathematically challenged. As long as they will not come to me when they run out of money in their retirement, their problem is only theoretical.

  3. Subbu , a question. What should be return considered for bucket 1. Should it be considered equal to inflation or a negative real rate of return . For example, liquid fund/fd grows at 2% in first bucket ( in 2033) and inflation is still around 6%. Is that a very poor and conservative assumption (-4% real rate of return )

  4. Hi Subra,

    Thanks for sharing some of the important aspects of Retirement.

    I had a quick question for Retirement Planning. As of today, I m 36 and salaried and just investing Rs.10000/- per month in MF since july, 2019 which i want to increase to another Rs. 25,000 per month. Now how to decide how much % has to be invested in which asset class to have a right mix of allocation.

    Any suggestions.


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