The Strategy Map Vol 4: How Can I Turn My Portfolio into a Consistent Income Stream?

January 28, 2025

Most clients we work with need to supplement their Social Security and/or pension income by taking distributions from their portfolio to cover ongoing expenses. Insert the “Bucket Strategy” to solve this need.

The strategy separates investment assets into “buckets” according to the time horizon of when those dollars will be needed. A diagram of how this works can be found below. While typically used as a paycheck replacement strategy for those nearing retirement, this strategy may also be used for those who need a consistent stream of income from their investments while still working.

The bucket strategy is not only an investment strategy, but also a risk management strategy. This strategy seeks to minimize the risk of being forced to sell your long-term investment assets when prices are low. It allows you to balance the need to protect money you require soon, while affording your long-term investments plenty of time to grow.

WM Strategy Map4 Bucket Strategy

There are four main buckets within this strategy. Cash flows from top right to bottom left. The first (red) bucket covers the money you need now. This bucket includes your checking or savings account. The next (blue) bucket is designed to hold the cash you will need to tap into within the next year. This bucket is designed to distribute or “pay out” periodically into your checking or savings account while earning a risk free rate of return. This bucket is often thought of as your “paycheck replacement” bucket. The blue bucket will eventually need refilled, which is where we continue to go upstream to the (yellow) liquidity ladder bucket. This bucket holds an additional four years of cash needs that is sheltered from stock market risk. This bucket holds income producing bond investments with specific maturities used to refill the blue bucket each year.

The final (green) bucket is for long-term growth. This is the bucket where stock market exposure is added to your portfolio and has a time horizon greater than five years. When the yellow bucket has a maturity and refills the blue bucket, it is left with only three years of cash needs and must be refilled. This is done by taking funds from the long-term green bucket. By protecting multiple years of cash needs, the yellow bucket creates flexibility. Only if the market returns are favorable will this refilling take place, preventing you from selling down long-term green bucket assets when prices are under pressure.

There is one final (grey) bucket near the bottom right called “Tax Reserve”. This is used for tax planning strategies that may apply to your situation to lower your lifetime tax bill. We can help determine if this type of strategy is right for you. Be on the lookout for our next article on this topic.


Contact Us Today!

Patrick V. Masso, CFA®, CFP®

Senior Vice President

Director of Portfolio Management & Financial Planning

*pvmasso@hbtbank.com

309-664-4504

Tyler Gonigam, CFP®

Financial Planning Specialist

*tgonigam@hbtbank.com

309-664-4540



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Securities and Insurance products are NOT deposits of Heartland Bank, are NOT FDIC insured, are NOT guaranteed by or obligations of the bank, are NOT insured by any government agency, and are subject to potential fluctuation in return and possible loss of principal. This information is not intended to be and should not be treated as legal advice. Readers should under no circumstances rely upon this information as a substitute for their own research or for obtaining specific advice from their own counsel.