The Three Buckets of Money in Retirement

Curtis has earned the Life and Health Insurance licensure, has passed the Series 66 examination, and has earned a degree from the University of Nevada, Reno. He has over 20 years of experience in the financial industry, helping others protect, grow and manage their wealth. Curtis helps clients create customized strategies for their portfolios based on their unique financial goals.

 

THE THREE BUCKETS OF MONEY IN RETIREMENT

As we enter or get closer to retirement, one of the main questions is how should we position our money?  As an individual or family, you have spent years saving and saving so you can eventually retire and hopefully have the retirement you always envisioned.  When this life change occurs, many people come to the realization that they have been in a growth and accumulation footing for quite some time.  As we are in our working years, we tend to be more aggressive and put money into what I would call the growth bucket as our objective is to grow our assets as much as possible to reach our retirement goals, but now that we are at retirement, what should we be looking at doing?  This is a pivotal phase as we move from growth and accumulation to a more conservative footing focused on providing income and some growth to keep up with inflation in retirement.

 

We will call the first bucket in retirement that we should have our savings bucket.  This should be an emergency savings bucket with cash readily available.  This is an important bucket in the growth and accumulation phase as well, but it serves even a more important purpose in retirement. The savings bucket here is designed to take care of any major expense without you having to mess with your income bucket or your growth bucket.  This can be to take care of any emergency, maybe getting a new roof or possibly a major car repair.  This bucket is always a bit boring as it is safe and liquid, but we don’t really get a larger rate of return here.

The next and possibly the most important bucket of retirement is the income bucket.  This is where you choose your portfolio or other investments to help fund your retirement.  Remember retirement is essentially up to thirty years of unemployment.  This is going to be a bucket where you do earn a rate of return, but not a major one like you would in the growth bucket as we don’t want to take the risk that what we did in our growth and accumulation phase.  Nothing will derail a retirement like taking too much risk and possibly losing half of our portfolio like we saw during the 2008 correction.  There are different tools that can be utilized here, but this is an important bucket to focus on as you enter pre-retirement or retirement itself.  Keep in mind that things like Social Security, Pension, and other income streams will help to support and supplement this bucket.

The final bucket is the growth bucket.  This is important to keep up with inflation and will most likely be utilized by longer term investments.  This can be a more growth-oriented portfolio where if there are losses it does not derail your income bucket.  It can be similar to what you utilized during your growth and accumulation phase, as it is longer term money with a longer time horizon.  With that being said make sure you stay within your risk comfort levels and aren’t invested in something with more risk than what you are comfortable with. 

There are all sorts of ways to title the bucket strategy, and many ways you can do it.  It is important however to keep your retirement goals on track as it will help take out some of the uncertainty in crazier times, such as major market movements, high inflation, or maybe the black swan even we haven’t seen yet. Utilizing the bucket strategy is a good way to have your plan in place, have some peace of mind and get on track with your retirement regardless of what is happening with the economy.  It may not be a silver bullet, but you may have less sleepless nights if you use this strategy.


Based in Reno, NV, Cornerstone is for individuals and families looking to grow wealth, protect and preserve their life savings, and plan for the distribution of their estate in a tax-efficient manner through a tailored strategy. Schedule a time to discuss your financial goals with us.