How should you withdraw money after early retirement? Expert explains the 3-bucket strategy for your FIRE corpus

The three-bucket strategy can help people achieving financial independence and early retirement (FIRE) manage expenses and market volatility. It divides investments into liquid savings for immediate needs, a balanced portfolio for medium-term expenses and equity for long-term growth.

Building a corpus for financial independence and early retirement (FIRE) requires a different investment strategy from saving for short-term financial goals. While investors need sufficient equity exposure to grow their wealth over the long term, they must also ensure that their money can support regular expenses once they stop working. The challenge is to build a corpus that can sustain decades of withdrawals without making retirement income overly dependent on short-term market movements.

Jasmeet Singh, executive director at Anand Rathi Wealth, says asset allocation should depend on the time remaining until financial independence rather than age alone. The strategy should also change once investors move from accumulating wealth to withdrawing money to fund their lifestyle.

How should you allocate investments as you approach FIRE?

Consider two investors aged 40. One plans to achieve financial independence at 45, while the other intends to retire at 60. The first has five years to build the remaining corpus, while the second has 20 years to benefit from potential equity-market growth. Their investment strategies, therefore, should differ despite being the same age.

Investors with longer investment horizons can maintain higher equity exposure, depending on their risk appetite. Those approaching their FIRE target should gradually increase their debt allocation to reduce the impact of market volatility on their retirement plans.

Financial responsibilities also influence the amount available for investment. Home loan repayments, children's education and supporting parents can affect monthly contributions towards FIRE. Investors should periodically review their target corpus, contributions and asset allocation to assess whether they remain on track.