3 Bucket Strategy for Retirement: Safe, Growing & Stress-Free Retirement Plan
Planning for retirement in India is no longer just about saving money—it’s about making your money work smartly throughout your golden years. Because of rising inflation, medical cost and lifespans, everyone face challange to ensure their retirement savings last 25 to 30 years without running out. That’s where the 3 bucket strategy for retirement comes in—a simple, smart, and proven method to help you create a stable, stress-free financial future.
Entering in the 3 bucket strategy for retirement—a proven, simple, and powerful approach that divides your retirement corpus into three different “buckets” based on when you’ll need the money. This strategy balances safety, income, and growth, ensuring you have cash for today, stability for tomorrow, and wealth for the long run.
What Is the 3 Bucket Strategy for Retirement?
The 3 bucket strategy for retirement is a powerful and easy-to-understand method for dividing your retirement money into three parts:
- Short-term Bucket
- Safety Bucket / Medium-term Bucket
- Long-term Bucket
This ensures you always have:
- Cash for immediate needs
- Safe investments for near-future needs
- Growth-oriented investments for the long term
This strategy is popular because it provides Liquidity + income + growth all at once.
Why the 3 Bucket Formula Works
The strategy is built around a simple idea:
Don’t keep all your money in one place. Divide it by time and purpose.
This is also known as the 3 bucket formula, which answers the question: “What is the 3 bucket formula?”
It means:
- Bucket 1: Money for now
- Bucket 2: Money for the next few years
- Bucket 3: Money for the long-term
Bucket 1 protects your savings from market ups and downs for short term, bucket 2 give you better return and liquidity, and bucket 03 will grow your savings to beat the inflation.
Bucket 1: The Short-Term Bucket
The short-term bucket holds cash that you will need immediately or within the next 1–3 years.
Purpose:
- Daily living expenses
- Medical costs
- Bills
- Emergency needs
Where to invest:
- Savings account
- Liquid funds
- Ultra-short duration funds
- Bank fixed deposits
- Short-term debt funds
Why it matters:
Bucket 1 strategy invest in liquid fund and debt fund category. Your daily life will be unaffected even if the market crashes.
Bucket 2: The Safety Bucket (Medium-Term Bucket)
The safety bucket (also called the Stability Bucket) is for money you will need in the next 3–7 years.
Purpose:
- Moderate-risk investments
- Income support
- Inflation protection
Where to invest:
- Corporate bond funds
- Balanced advantage funds
- Short-term/medium-term debt funds
- Post Office Monthly Income Scheme (MIS)
- High-quality corporate bonds
Why it matters:
It protects your portfolio from losing money too quickly while still giving better returns with liquidity. Your money values grow according inflation.
Bucket 3: The Long-Term Bucket
The long-term bucket is where wealth grows. This is for needs 10+ years away.
Purpose:
- Long-term wealth creation
- Beating inflation
- Growth-focused investing
Where to invest:
- Equity mutual funds
- Index funds
- Direct equity (for experienced investors)
Why it matters:
This bucket will help your money grow faster. It will also ensure you don’t run out of money in retirement. Hence 03 bucket strategy for retirement will work in a fantastic way, your money will sustain comfortably for 30 years.
Rebalance
Put your first 5 years of expenses in Bucket 01, the next 5 years of expenses in Bucket 02, and the remaining amount in Bucket 03.
For example, if you have ₹1 crore and your monthly expense is ₹40,000, then you will allocate:
- ₹25 lakh to Bucket 01
- ₹25 lakh to Bucket 02
- ₹50 lakh to Bucket 03
After 5 years, you will rebalance the buckets again.
By the end of 5 years, when the money in Bucket 01 is used up, the value of:
- Bucket 02 will grow to around ₹35 lakh at a 7% annual return
- Bucket 03 will grow to around ₹88 lakh at a 12% annual return ( Hybrid, Multi Asset and Large cap mutual fund, Stock for expert, PMS fund, )
Your total corpus will become ₹1.23 crore.
Now, you can divide this corpus again into the 3 bucket strategy for retirement, and by rebalancing every 5 years, your money will sustain comfortably for 30 years or more without running out.
What Is the Best Percentage for a 3 Bucket Strategy?
This depends on your age, risk appetite, and retirement stage.
Standard Suggestion:
| Bucket | Recommended Percentage |
|---|---|
| Short-term Bucket | 20–25% |
| Safety Bucket | 20–25% |
| Long-term Bucket | 50–60% |
3 Bucket Strategy Breakdown
| Bucket Type | Duration | Risk Level | Goal | Ideal Investments |
|---|---|---|---|---|
| Short-term Bucket | 1–3 years | Very Low | Daily expenses, emergencies | Savings account, liquid fund, FD |
| Safety Bucket | 3–7 years | Low–Moderate | Income stability, inflation cushion | Debt funds, balanced advantage funds |
| Long-term Bucket | 10+ years | High | Growth & wealth creation | Equity funds, index funds, |
FAQs — 3 Bucket Strategy for Retirement
1. What is the 3 bucket strategy for retirement?
It’s a very simple method to divide retirement savings into short-term, mid-term, and long-term buckets for stability and growth.
2. What is the 3 bucket formula?
It means splitting your money into:
- Cash for now
- Safe investments for near future
- Equity for long-term growth
3. What is the best percentage for a 3 bucket strategy?
A good starting point is:
- 20-25% short-term
- 25-40% safety
- 40-50% long-term
4. Which bucket is most important?
All three buckets matter, but Bucket 1 ensures cash flow, while Bucket 3 grows your wealth.
5. Is the bucket strategy for retirement India-friendly?
Yes! It works extremely well due to India’s:
- Strong mutual fund market
- Government-backed safe schemes
- High growth opportunities
6. Can I use a retirement bucket strategy spreadsheet?
Yes, using a spreadsheet helps track all buckets, rebalance, and plan cash flow.
Conclusion
The 3 bucket strategy for retirement is a simple but very powerful plan that helps you build a balanced retirement portfolio. With the right mix of short-term bucket, mid-term bucket, and long-term bucket, you can enjoy financial stability, steady income, and long-term growth—all without stress. By this strategy, your money will sustain comfortably for 30 years or more without running out.
This 3 bucket strategy for retirement will help you in every stage of life for retirement planning.
