No matter how much you’ve saved, no matter how well your investments have done, it can be surprisingly scary to realize you will need to start living off your savings in retirement. Of course, your Canadian Pension Plan will play a major role in covering your monthly expenses, and there are plenty of ways to generate income in retirement. But still — realizing that your principal must now be earmarked for the present as much as the future can be a sobering thought.

Every retiree should have a strategy for when they will withdraw money from their accounts, which accounts they will draw from first, and how much they should withdraw every month, quarter, and year. There are many potential strategies to choose from, and a near-infinite number of ways to customize each strategy for you. Over the next few editions of this newsletter, we’ll break down a few of the more common, starting with:

The Buckets Strategy. With this approach, you divide your savings into three buckets: Short-term, intermediate-term, and long-term.

The short-term bucket is the money you’ll need for the next 1-3 years. These funds would usually be invested in fairly liquid assets that don’t usually experience a lot of volatility. (Think cash, GICs, and treasury bills.)

Your intermediate bucket is for goals and needs approximately 3-5 years out (Some people prefer reserving this bucket for as many as 10 years out.).

Longer-term bonds and specific types of ETFs or mutual funds are popular investment options for this bucket.

Finally, your long-term bucket is, essentially, for the rest of your life. This should contain money that you want to see grow throughout retirement – and because you won’t need the funds anytime soon, you’re comfortable taking on a bit more risk. Individual stocks are a common choice here; annuities are an option to consider, too.

Of course, with all of these buckets, you must first determine how much you’ll need to cover your short, intermediate, and long-term expenses…which means you must also determine what those expenses will be. This is an area we are always happy to assist with

Next month, we’ll look at another common withdrawal strategy: The 4% rule.