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The Four Buckets Framework: A Post-COVID Shift in Retirement Income Planning

Tom Dickson hosted a Financial Experts Network webinar featuring Ethan Lohr, CFP®, a financial planner based in Charlottesville, Virginia, who presented his Four Buckets Framework for retirement income planning in a post-COVID environment. The framework was developed in response to behavioral, emotional, and structural weaknesses Ethan observed in traditional probability-based retirement planning models, especially during periods of market stress.

Why the Framework Was Created

Ethan explained that early in his career he relied heavily on Monte Carlo simulations and probability-based planning tools (such as RightCapital), which often showed high probabilities of success and large projected legacy balances. However, real-world experience revealed that retirees:

• Spend far less than models assume (often well below the “4% rule”),
• Anchor emotionally to market values rather than income stability, and
• Struggle behaviorally during major market disruptions, such as COVID-19.

COVID became a pivotal moment. While clients using traditional investment-only strategies were anxious and tempted to change course, clients with guaranteed income components were more confident and able to stay invested. This contrast led Ethan to blend his planning-first approach with the income-security strategies his father had long used, resulting in the Four Buckets Framework.

The Four Buckets Explained

The framework is designed to be behavior-proof, meaning it prioritizes emotional resilience and income clarity over abstract probabilities.

Bucket 1: Cash Reserves

This bucket holds liquid cash assets (checking, savings, CDs), typically covering several months of expenses. It provides immediate liquidity and psychological comfort, helping retirees avoid selling long-term assets during market downturns.

Bucket 2: Earned and Predictable Income

Bucket 2 includes Social Security, pensions, rental income, and earned income from part-time work. These income streams are familiar, predictable, and form the foundation of retirement cash flow. Ethan emphasized using clients’ existing understanding of Social Security to anchor the rest of the plan.

Bucket 3: Secure Income (Lifetime Income)

Bucket 3 is the centerpiece of the framework and focuses on guaranteed lifetime income, typically delivered through annuities with guaranteed lifetime withdrawal benefit (GLWB) or guaranteed income riders. Ethan deliberately avoids calling this the “annuity bucket” in client conversations, instead framing it as secure or lifetime income, to reduce bias and resistance.

Two design styles were discussed:

• Maximum Efficiency Approach: Uses the smallest possible premium (often via fixed indexed annuities) to generate required income, intentionally allowing the contract value to decline to zero to maximize insurance leverage.
• Growth-in-Income Approach: Uses variable annuities with income riders, allowing continued market participation and potential income increases, at the cost of committing more assets and incurring higher ongoing fees.

Ethan noted that typical rider fees are approximately 1.0%–1.1% annually, and when combined with fund expenses and other costs, total all-in costs may reach approximately 3.6% in some structures. This makes careful allocation critical.

Bucket 4: Growth Assets

Bucket 4 contains assets earmarked for long-term growth, inflation protection, discretionary spending, long-term care needs, or legacy goals. Once lifestyle income is secured by Buckets 2 and 3, these assets can be invested more aggressively without triggering client anxiety during volatility.

Inflation, Longevity, and Flexibility

Ethan emphasized that:

• Longevity risk is addressed through joint lifetime income guarantees in Bucket 3.
• Inflation can be mitigated through growth-linked income riders, staged annuitization, or periodic income increases funded from Bucket 4.
• Liquidity concerns argue against placing excessive assets in annuities, reinforcing the need for balance across buckets.

Modeling Tools and Client Experience

While Ethan continues to use tools like RightCapital for back-end validation and data aggregation, he does not rely on them for client-facing discussions. Instead, he uses:

• Fillable PDFs,
• Whiteboards,
• Plain-language income framing.

This approach keeps the focus on lifestyle, income clarity, and decision ownership, rather than probabilities and terminal portfolio values.

Key Behavioral Insight

A central theme throughout the discussion was that retirees often underspend out of fear. The Four Buckets Framework is designed to give clients permission to spend by replacing uncertainty with dependable income streams.

External Fact-Check and Reference Sources (Written-Out URLs)

Social Security as a foundational income source

• Social Security Administration – Retirement Benefits
  https://www.ssa.gov/benefits/retirement/

Longevity risk and increasing retirement duration

• Social Security Administration – Life Expectancy Calculator
  https://www.ssa.gov/oact/population/longevity.html

Guaranteed lifetime withdrawal benefits (GLWB) overview

• FINRA – Variable Annuities: What You Should Know
  https://www.finra.org/investors/investing/investment-products/annuities/variable-annuities

Annuity rider fees and cost structures

• SEC – Annuities Investor Bulletin
  https://www.sec.gov/oiea/investor-alerts-and-bulletins/ib_annuity

Behavioral responses to market volatility

• Vanguard – Advisor’s Alpha and Behavioral Coaching
  https://investor.vanguard.com/advisor/alpha/behavioral-coaching

Cash reserves and sequence-of-returns risk

• Fidelity – Sequence of Returns Risk Explained
  https://www.fidelity.com/viewpoints/retirement/sequence-of-returns