Ep. 157 – The Retirement Bucket Strategy

Have you given thought to how you’d like to structure your retirement plan? How about a strategy that ensures you have both income and growth in retirement?

The bucket strategy is a simple strategy that will give you peace of mind through your retirement. The goal for your retirement should be to have access to money, an income stream, and growth on your money.

In this episode of the Secure Your Retirement podcast, we talk about the retirement bucket strategy and its peace of mind benefit. Listen in to learn how to separate the cash, income, and growth buckets and remove worries from your retirement plan.

In this episode, find out:

  • The 3 buckets that make up our peace of mind first retirement strategy.
  • Having a liquid cash bucket – an existing and protected emergency or feel-good fund.
  • The income bucket – is a paycheck you can rely upon every single month to cover your needs and wants.  
  • The growth bucket – a growing yet risky bucket and likely going to be in the stock market.
  • Why the income bucket should be disconnected from any stock market fluctuations.
  • How the peace of mind first retirement strategy removes any worry of the stock market fluctuations.

Tweetable Quotes:

  • “The reason we can have some volatility in the growth bucket is because we know that our income is covered.”– Murs Tariq
  • “When you retire, you want to make sure that you have the income coming in and you don’t want to worry about it.”– Radon Stancil 


If you are in or nearing retirement and you want to gain clarity on what questions you should be asking, learn what the biggest retirement myths are, and identify what you can do to achieve peace of mind for your retirement, get started today by requesting our complimentary video course, Four Steps to Secure Your Retirement!

To access the course, simply visit POMWealth.net/podcast

Here’s the Full Transcript:

Radon Stancil:Welcome to our Secure Your Retirement podcast. Murs and I, today, are going to talk with you on a topic that we think is extremely important. It’s on the minds of everyone we talk to when it comes to retirement planning, and that is how do I structure my investments? How do I restructure everything I’ve got that’s been for retirement so that it provides me with, in all essence, emergency money? How do I get income? Where’s the income going to come from? And then how do I grow my money? And that sounds really, really simple, but let me give you a little bit of a backdrop on why we think this is such an important thing to think through.  
 One of the things that occurs is that when people come and talk to us, they have been working for decades, many times. Saving and then getting a paycheck from their employer, or if they’re self-employed, they’ve been generating that from their business that they created. So, think about that. For decades. Years, and years and years, you’ve trained yourself to save, save, save. And now, all of a sudden, you get close to retirement, and you’re going, wait a minute, I’m going to flip a switch one day. And all of a sudden, instead of me saving, I need all that money that I’ve done a good job of saving for retirement. I need it now to generate for me something, an income to be there for the rest of my life. And if I retire when I’m 65-years-old, and I live to 90, that’s 25 years that that’s got to occur. And I will tell you of all the things that when we talk to people about on this idea of planning for, and living throughout retirement, the number one fear people have is, do I have enough money? Am I going to run out?  
 And I will tell you that is regardless of whether or not somebody has a million dollars, $500,000 or 7 million or $10 million, the worry is the same. And so, what we want to do today is walk you through this concept, this idea of how to do what we call our peace of mind first retirement strategy. Now, why do we say that? Well, a lot of times, when you think about investing for your retirement funds, a lot of times, people think, how much money can I make? Can I make 8, 9, 10, 15% rates of return? Because they equate that to safety, and they equate that to being able to have the security of an income stream off of this huge return. But then what happens? You have a pandemic. You have a financial crisis. You have a war in between Ukraine and Russia, and the market starts giving us some volatility.  
 And what happens to people’s anxiety? It goes way up off the charts, and what they thought about because maybe they lived through this big boom of some 10-year period like we had in the last 15 years, we had some pretty good up years, but now you’re the one retired. How do you deal with that? So, Murs, I’m going to turn it over to you and let you help build maybe this visual for people to say, how can I organize this? And I just want to say it again, Murs and I are very, very big about simplicity. We do not want this to be complicated. We want you to be able to see it and visualize it. So Murs, can you help us visualize what this can look like?  
Murs Tariq:Yeah. And I think a big reason as to why we started this podcast was to help educate around different ways that we can do things. And this strategy that we use day in and day out is something that is very simple. Like Radon said, something that is very easy to grasp. You can hear it in a 10-minute spiel or a 10-minute podcast. You’ll be like, okay, I get it. This makes perfect sense. And basically, we call it a bucket strategy. And so, obviously, there’s a lot of thinking that we need to do to get to this point of understanding what’s going to go in each bucket, but the three buckets are very simple.  
 The first one is your liquid cash. You could look at this as an emergency fund, or a feel-good fund where we have clients that like to have a certain amount of money in cash just because they may not need it, but it feels good to have it, knowing that it’s there, it’s in the bank, it’s safe. It’s FDIC protected. And then, when we’re in retirement, what’s the next big worry? The next big worry is, well, where’s my paycheck going to be coming from every single month? How am I going to get the bills paid? And that is going to be coming from our income bucket. Income is exactly what you’re thinking about. It’s dollars coming in the door that you can rely upon every single month.  
 Typically, that’s really for the majority of people, your first income source in retirement is going to be social security. Some of you may have a pension. There may be some other income options out there, but eventually, and for the majority, that’s not enough to cover your normal monthly budget. So, there’s going to be something that needs to be added into that income bucket so that we can have a very reliable monthly income stream that covers what we call our needs and our wants.  
 And then, with what’s left over now, now we can go and put that into the growth bucket. And the growth bucket is going to do exactly what it’s supposed to. It’s supposed to grow over time. This bucket is going to have some risk to it. It’s very likely going to be in the stock market and going up and down. Over time, it’s going to be going up, but that’s our growth bucket. And the reason we can have this growth bucket, the reason we can have some volatility over here in this bucket is because we know that our income is covered. We know that our daily and our monthly needs are taken care of by the income bucket.  
 So, the concept here is very simple. Liquid cash for our emergencies, our feel-good money. An income bucket that covers our monthly expenses, our needs, and our wants. And then, our growth bucket to grow over the long-term that can ride out some of the volatility of the market that can help us prepare for inflation, help us prepare for legacy money, and everything like that. And something that we don’t need to worry about as much because our income is covered. So those three major buckets, once we put those three together in a very nice, well thought out plan, all of a sudden, you have our peace of mind first retirement plan. And so, I think, Radon, that’s the concept there. How about we walk through a quick little case study?  
Radon Stancil:Yeah. And I think I want to just speak on that income bucket for just a minute. And the concept of the past that probably has been thousands and thousands of articles written on is what’s called the 4% rule. And the 4% rule basically says, whenever you retire, you can take up 4% out of your retirement money every year to live on. The problem with that is if that income is based on 4%, and we have a downturn in the market and your income is driven by, or fluctuate based on the market. Imagine what happens. Let’s say you have a million dollars, you retire, and you say, great, I’ve got an income now of $40,000 a year I can pull from that million. Well, if that account goes down by 30%, so now it’s down to 700,000. My income has to reduce by 30%.  
 If I’m going to continue to withdraw 4%, if I’m now withdrawing the same amount that I was back on the million, I’m now taking out maybe five or 6%. So, the income bucket, when Murs and I talk about that income bucket, our guideline is that income bucket cannot have stock market fluctuation. We want it to be disconnected from fluctuations. Why? Because when you retire, you want to make sure that you have the income coming in, and you don’t want to worry about it. And that’s why we want to set it up that way. So in the case study, and we’ll go back and forth on this a little bit, Murs and I, but let’s just imagine for your mind that you’ve got a million dollars saved up in your retirement accounts.  
 Now, you’ve got your social security, you’ve got your maybe a pension or whatever it might be, but let’s just pretend that you say, in addition to those other things, in order for me to have my income that I want, I need $2,500 a month to generate, I want it to come in every single month and I don’t want to worry about it. Well, what we could do in this example, and this is just purely an example, we could say, okay, of the million, let’s put $50,000 over into our liquid bucket. That’s going to be very much like a money market, a CD, a check and savings, whatever it might be. Just easily accessible money.  
 Then, in my income bucket, I’m going to put roughly 450,000, and then I’m going to have 500,000 left to go in my growth bucket. Well, what does that look like? Well, just doing some very modest returns. If I take my 450,000 in my income bucket, and I just say, look, I just need to get a 3% rate of return. Again, we’re not trying to be aggressive with these numbers. 3%, well, how long is that money going to last? Well, I’m going to get a paycheck. I’m going to get a retirement paycheck or an income stream of $2,500 a month for 20 years on that account.  
 Now, what happens at the end of 20 years? Well, if we only earn 3%, we pull out 2,500 every single month for the 20-year period, that bucket is going to be empty at this point. But remember, what do we have left? We’ve got our growth bucket. We put 500,000 in there. And again, a very conservative rate of return of 6% for the next 20 years. How much am I going to have now in my growth bucket? Well, I’m going to have $1,700,000 sitting in my growth bucket at that point. So what can I do at this point? Well, let’s say I retired at 65. Now I’m 85. I can take some of my growth money and put it over into my income bucket to fund the next 10, 15 years, however long I want. Right?  
 So, think about the concept here. If I’m retired, I’m traveling, I’m doing things, I never have to worry about where my income’s coming from. I know that I’m getting that paycheck, that retirement paycheck put into my account every single month, no matter what. So can you imagine now having a peace of mind throughout retirement, knowing that, hey, if the stock market’s down five, six, 7% right now, I’m not even worried about it. Why? Because I have my income. I know that over time the stock market will go up, and I’m not worried about that idea. So, that gives the concept. Anything on that, Murs, that you want to share?  
Murs Tariq:No. I think that’s it. In a quick 10-minute presentation here, we’ve explained a major concept and investing, and retirement planning, it can get overly complex sometimes. And we’re here to say it doesn’t need to be that complex. It can be as simple as three little buckets.  
Radon Stancil:Very nice. So if you have any questions about this, or you’d like to get more information about it, there’s two things you can do. One, we went through all these numbers. You can go to our website, which is pomwealth.net. Go to the blog page. We have an article written on this very topic. You can also go to the right-hand top corner of our website, and you can just see where it says schedule call. And when you click on that, our calendar’s going to come up, and you can get on a 15-minute, no-obligation, complimentary phone call, ask us any questions. Talk to us about this or any other concept you would like to talk to us about. And we would be glad to have that conversation with you.