I had an introductory meeting with an independent Certified Financial Planner who mentioned that:

  • People tend to allocate a certain amount for their children's marriage, or buying property or retirement etc.; and when some unexpected crisis comes up, they withdraw money from these savings which they had compartmentalized and which they basically shouldn't have touched (and because they withdraw money from it, their long-term retirement plan or children's marriage plan suffers).

She pictured these compartments as "buckets" and said that she preferred to think of such long term planning in terms of one single financial "bucket", so that people's long-term goals would not get botched.

I didn't ask for more details, because I didn't know what I could ask her to elaborate, but in general:

  • does it make sense to "consider investments as one bucket"? (This is not the same as putting all investments in one basket. My investments would be diversified.)

  • Is it really OK to depend on just a Provident Fund (PF) as a retirement plan? Is there really no need to plan for any other retirement fund?

As a side question, the planner has asked for an upfront fee payment, after which she sits with me for an approx. 4 hour meeting and makes the financial plan for the year ahead. After that I'm welcome to consult her occasionally, but she charges me only if the questions take up too much of her time/expertise to answer. She makes no commission on my investments, as it's entirely my choice on where I invest. I hope this is a reliable approach?

  • How much control do you have in the PF? It seems similar to Social Security which is quite different than an IRA where you have optional contributions.
    – JB King
    Jun 23, 2013 at 13:15
  • I've clarified that this question is specific to India and has nothing to do with U.S. IRAs. While there may be some similarity, it's best to stick to the specifics and not generalize (muddy) this question. Jun 23, 2013 at 14:27
  • @JoeTaxpayer There's a CFP program in India, so I left that in. See fpsb.co.in/scripts/CFPCertification.aspx Jun 23, 2013 at 14:30
  • Thanks Chris. @Joe: This is not a question about PF. It is a question about whether it is better for a person to plan their savings as a single "bucket" or not. These savings can be for retirement, children's marriage, buying property, a car or anything. It has absolutely NOTHING to do with the USA or India. It's a question on managing finances.
    – Nav
    Jun 23, 2013 at 17:22
  • @Nav, if your savings vehicle has additional penalties for pre-retirement withdrawals (such as the U.S. IRA or 401k, where you pay extra 10% tax for withdrawals before age 60, or accounts that lock up your retirement savings), then it does matter whether you use it for all savings, or just for retirement savings. You should never completely ignore the kind of account and its tax advantages and/or penalties. Jun 23, 2013 at 18:21

3 Answers 3


The bucket concept. What ever works. Some people literally use envelopes, putting cash into each category for there upcoming bills. I prefer not to mix my long term investments. My daughter's college fund is in a series of separate accounts from our retirement money. I won't criticize your CFP's comments, because advice is individual, her approach probably works well for her clients. The important thing isn't the focus on the words, but the end result. Spend less than you earn, save for each of your goals.

I removed any IRA/US reference and comment on bucket concept.


Lets say that college costs 100K per kid and they you have 3 (ages 8,9,10) and expect tuition and fees inflation of 8% per year; you are 40 and want to retire at age 65, and would have to replace 80% of you final years salary and expect your salary to increase 2% above inflation, but you do have a pension that based on the number of years of service you will have if you don't switch companies will replace 40% of you final salary, but if you leave now will only cover 15%; the equivalent of social security will replace 10%; your spouse works part time and has no company provided pension; your big single bucket of long term savings has 123,456. Are you on target?

You can't answer the question without first determining how much money each of those individual buckets (kid 1, kid 2, kid 3, pension, social security and retirement) needs to have today and in the future. Then you take the money you do have and assign it to the buckets. Of course different accounts have different tax, age, deposit and use rules. Also what happens after the last child graduates, so the amount of money available each year will change significantly.

The key to not stealing money from long term savings goals is to realize you also need an emergency fund and a life happens fund. That way an engine repair does require you to pull money from the education fund.

  • :-) My CFP told me of a contingency fund (which I thought was the emergency fund) but when I saw your mention of a "life happens" fund, I realized that it's what was the contingency fund and the emergency fund was meant to be a liquid investment. Nicely explained.
    – Nav
    Jun 24, 2013 at 17:28

If I had to take sides, I'd think that it would be better to be able to divide up the entirety of your savings into big "buckets," as others are saying in their answers -- if not in physically accounts, then at least conceptually.

Let's say you're 45 years old and have $350,000 in various accounts. I would argue that you should at the very least know this level of detail:

Retirement capital                    $200,000
Kitty for distressed real estate      $100,000
Catastrophic medical self-insurance   $ 50,000

So, if you get in a really, really bad snowmobile accident that costs $100,000, you know, at least conceptually, that:

  1. your medical self-insurance fund is wiped out, and
  2. your retirement and/or distressed real estate purchase fund have been set back by the shortfall, which is $50,000.

Now, you're in a better position to revise your goals. Maybe you decide that real estate isn't "all that" and you allocate the entire shortfall to that item, and reallocate it to start the first Snowmobile Safety Program in the country.

So now it looks like this:

Retirement capital                    $200,000
Seed money for SSP                    $ 50,000

But had you not compartmentalized the funds to begin with, you wouldn't have known where you stood.


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