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.