Our retirement income strategy.

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WE CHOOSE THE 3 BUCKET STRATEGY

The retirement bucket strategy divides your retirement income into three buckets: short-term needs, mid-term needs, and long-term needs. The goal is to have your income needs always met, regardless of market volatility.

I’ve always been fascinated with this income strategy, and love the concept. Perhaps it’s because I already have three different retirement brokerage accounts already set up. I love organization, so this fits the bill. (no pun intended. 😉 )

In our first retirement brokerage account (and the lowest amount of money), we recently sold all our stock shares and bought mutual funds. This essentially secured two years’ worth of living expenses for our retirement. We have cash savings (outside retirement) that would fund a year’s worth of expenses, bringing that 3 years’ worth of expenses and shoring up Bucket No. 1. So if my husband should lose his job today, we have three years to figure out what is next without selling stocks in a down market.

Our second retirement account (which is still active via my husband’s employment), would fund years 4-7. We presently have this at medium risk, hoping to have the investments keep up with inflation. Social security would start in year 7, which would take over 50% of our expenses requiring less from our investments.

Our third retirement account (and by far the largest) would have the opportunity to grow over the next 10 years, leaving us with enough income to bring us well into our late 90’s, if we should live so long.

Ultimately, the bucket strategy seems to hedge against market volatility. If there are down years, we have the cash. Should there be a huge gain in the stock market, we would move another three years’ worth of expenses into Bucket One again and start all over. For us, it makes sense.

Based on our current savings and expenses, we could feasibly retire today. However, we still have some kinks to work out. We need to figure out true healthcare costs and coverage before Medicare kicks in so that won’t break the bank or worse lose access to our doctors. We also need to revisit long-term care insurance–this time with personal knowledge of how much nursing home care really costs and the emotional strain it puts on family members when there is no money for a decent place. (More on that to come).

If you are retired, how do you draw on your income each month?

If you want to know more about the three-bucket strategy, I’ve found this article to be helpful.

Why I’m building up my savings before I pay off my mortgage. The reason may surprise you.

One of our pre-retirement goals was to pay off the house. Now I’m not so sure that is the best financial move for us at this time.

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About a year ago, we refinanced our mortgage when interest rates were very low and secured a 2.25% rate. Of course, back then, the interest on savings accounts was near zero. Fast forward to today. It appears the financial markets have made a 180. Our online bank is now paying 2.5% interest (3.0% if I switch to a CD). So effectively, I am now getting more interest on my savings account than I am paying in mortgage interest. Crazy, right?

In light of that, we have decided to bulk up our savings instead of rapidly paying off our mortgage. It feels right to have more cash available at this time. And, should when the financial markets turn again, we will have the choice of paying off our mortgage with our savings. We are betting, at least for the next couple of years, rates on savings and mortgages will continue to rise, making it more advantageous for us to save cash. Unfortunately, it won’t look good for those wanting to get a mortgage. Currently, my credit union is offering 6.25% for the same mortgage I got last year for 2.25%. Ouch.

The other reason we are holding off paying down the mortgage is that we still want to downsize. We feel having cash on hand would be better than equity tied up in the house.

I feel as though I’ve had to pivot quite a bit from our original plans for retirement. This last year has been a crazy ride. I guess we’ll have to see how this new plan plays out.

Have you made any changes to your financial plans?

June Spending: Adding it up.

Every Monday during 2022, I am posting an update on what I spent for the week (variable spending only) as a way of keeping myself accountable for my impulse spending. Also, to see my true savings, I am tracking items I was tempted to buy but didn’t.

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(I thought I would post this a day early)

June is in the books, as well as the first half of 2022. It’s hard to believe how fast this year is going, and also how slow. (I’m anxious, for many reasons, for this year to be over!).

This week’s spending is rather high, mainly because of gift-giving. I was late in getting wedding cards out (to weddings we didn’t attend) and a family friend’s baby. I decided to just get it down all in one fell swoop. Ouch. I also filled up my gas tank on the 30th, and both categories felt a bit like ‘cheating’ before going into July’s challenge, but I wanted to be fully transparent.

Here is the spending for June 27 – 30th:

• Groceries: $121.31
• Eating out: $45.00
• Personal Care: $7.00
• Gifts: $506.00! (2 family birthdays, two weddings, and a baby shower!)
• Gas: $41.65

Total: $720.96

June’s recap of spending by week:

• June 1-6: $1,660.73
• June 7-13: $321.13
• June 14-19: $724.52
• June 20-26: $384.66
• June 27-30: $720.96

Total Spending for June: $3,812.00.

Not the best month, but pretty consistent with my average spending. Hopefully, I can whittle that down to at least half going forward.

How was June for you?

Nine months and counting!!

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We are now only nine months away from my husband retiring! This morning’s money meeting clinched the deal. Although the stock market has been taking a hit, and it seems like a disaster, there is a bright side! Interest rates for secure savings accounts are finally increasing!!

How will we manage our money?

For the first 5 years of retirement (just before taking social security), we will be utilizing laddered CDs for our living expenses. Fidelity has some high-yield laddering CDs, and I intend to take full advantage of the 5-year ladder plan within the next couple of months. We have recently taken advantage of I Bonds, which are presently yielding 9.62%. You can learn more about them here. I also moved some of our savings into other 12-month CDs that are getting 1.75% – 2%. (I know this isn’t keeping up with present inflation, but it’s much better than the .1% they had been offering). I’m keeping 9 months of living expenses in cash at Ally Bank which is finally earning at least 1%.

Why retire in 9 months and not now?

Although we could feasibly retire at any time, nine months will give us the time needed to get all of our accounts in order. During that time, my husband’s company will be adding 7.5% of his income into retirement investments, we will cap off our Health Savings Account and add more money to our liquid savings accounts. (Nothing wrong with some extra cash, right?) 🙂

It feels so much better knowing that we will have our living expenses in safe accounts, backed by the FDIC, and not holding our breath each month while the market takes its wild ride. (I’ve never been a fan of roller coasters. 😉 ) We can actually relax. We will still have a significant portion of our nest egg in investments, but since we won’t have to touch those for another 10 years, it will have the necessary time to grow.

Anyone else taking advantage of I Bonds or laddering CDs?

Have we found a new retirement destination?

As we inch closer to a retirement date, we thought it prudent to start searching for a retirement location.

Via

We first listed our wants:

• Driveable distance to family (Most important!)
• Lower taxes
• Excellent Health Care
• Lower real estate pricing
• Low maintenance, one-level living
• An active community with hiking trails, salt-water pools, and entertainment
• All four seasons, but a temperate climate in the winter (i.e. very little snow, if any)
• If possible, a coastal beach
• Dog friendly.

It all started with an income tax rate search for the following states: VA – NC – SC – GA. (Although we were once smitten with Florida (which has NO income tax), that wained when I got totally triggered on my last flight from Florida — long story — but suffice it to say I will only fly when traveling for a vacation destination or when absolutely necessary.)

Out of the four southern states that we were considering, North Carolina had the lowest income taxes (and thankfully was the closest to Virginia!)

Once we picked the state, we started searching the coastal cities. Wilmington, NC popped up in the search and we decided to take a closer look into this beautiful coastal city.

We found that it literally checked off all the boxes we listed above.

1. Drivable Distance to Family: Wilmington, NC is approximately 360 miles from where I am now, which would be about a 5.5 hour drive. This is about the time it takes me to get to New York to see my parents, so we know this is a very doable road trip.
2. Lower taxes. This is amazing. Not only is there a lower income tax, the property tax is 50% LOWER in North Carolina than where we are in Northern Virginia.
3. Excellent Health Care: Although I couldn’t find a lot of information about healthcare in Wilmington, there are plenty of hospitals and medical centers in the area. I’ll have to look further into this one.
4. Lower Real Estate Pricing: Based on what we are looking for (and we are picky!), a home would cost us approximately $450,000 – $500,000. This would be a fairly NEW home with all the amenities. Our home in Northern Virginia has been valued at $900,000 (which is crazy, if you ask me). We have a very small mortgage, so we could literally walk away with no mortgage and at least $300,000 in cash. That is certainly not chump change. 😉
5. Low Maintenance/One Level Living: Retiring in Wilmington is a thing, and there are many one-level homes as well as first-level master bedrooms. There are many communities to choose from!
6. An Active Community/Entertainment: Most of the planned communities in Wilmington offer pools, recreation, hiking trails, and entertainment. There is also Historical Wilmington (the actual city) that offers a beautiful Riverwalk with many restaurants and pubs.
7. All four seasons, but a temperate climate in winter. Although the summers get hot (they do here as well), their winters are very mild, with little or no snow. Yes. Please.
8. Coastal Beach. There are three in the immediate area, all offering different experiences. Kure, Wrightsville and Carolina. A nice grandchildren draw….
9. Dog Friendly: After doing a bit of research, I found this article about dog friendly places in Wilmington. It would appear that Wilmington is VERY dog friendly. I also found The Dog Play Spot for when we would vacation, or just need a weekend away. I was impressed.

We’ve already spoken to a realtor and planned a visit. I have a good feeling about this one. 😉