Keep It Simple, Stupid – KISS. That is the best advice I can give for one’s retirement. The more complex your retirement plan the harder it will be to keep to it. Thus, the beauty of the 2-Bucket Retirement Plan.
It works just like this.
You need $50k a year in income. You get $30k from Social Security. You need to make up the extra $20k from portfolio distributions.
In bucket 1, you then keep 3 years worth of that $20k into a safe account, checking and laddered CDs.
In bucket 2, you invest in a diversified equity portfolio. Every year, when the market gives you gains, you take those gains and put them into the first bucket. If the market is down and your portfolio has lost ground, you leave it be.
Literally that simple.
Notice though in bucket 2 there are NO bonds. The reason is that your income, Social Security, pensions etc. should be viewed as your bond portfolio. So, given you have the bulk of your income coming from bonds there is no reason to add MORE bonds. You already have that covered.
You do need to check each year in this plan. It is NOT a set it and forget it plan. But, of course, NO retirement plan should be a set it and forget it. That’d be crazy.
If you start the year with $100k in bucket 2 and by year end it’s worth $120k. Take that $20k out and move it to the first bucket. Simple as can be.
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The Two Bucket Retirement Plan: Keep It Simple and Secure
As we approach our golden years, retirement planning becomes an increasingly important aspect of our financial journey. It is natural to desire a retirement that is both comfortable and worry-free, allowing us to enjoy the fruits of our labor. The Two Bucket Retirement Plan, also known as KISS (Keep It Simple and Secure), offers a straightforward and effective approach to achieving this goal.
The concept behind the Two Bucket Retirement Plan is based on simplicity, security, and a clear focus on financial stability. It involves dividing your retirement savings into two distinct buckets, each serving a specific purpose and ensuring a well-balanced financial future.
Bucket one, also known as the “income bucket,” is designed to provide a steady stream of income throughout retirement. This bucket should be filled with low-risk investments, such as fixed-income securities and annuities, which generate consistent returns. By allocating a portion of your savings to this bucket, you can cover your day-to-day living expenses, ensuring a reliable source of income even during market downturns.
The second bucket, referred to as the “growth bucket,” is aimed at maintaining and growing the purchasing power of your savings. This bucket should consist of higher-risk investments, such as stocks and real estate, which offer the potential for higher returns over the long term. By allowing your investments in this bucket to grow, you can ensure that your retirement savings keep pace with inflation and provide for any unexpected expenses that may arise.
The beauty of the Two Bucket Retirement Plan lies in its simplicity. By clearly defining the purpose of each bucket, individuals can have a clear understanding of their retirement income and growth goals. This distinction helps eliminate the temptation to dip into the growth bucket prematurely, as the income bucket covers the immediate needs.
Additionally, this plan offers significant advantages in terms of security. By building a solid foundation in the income bucket, you can weather market volatility without sacrificing your primary income source. This provides a sense of peace and stability during periods of economic uncertainty, allowing you to focus on enjoying your retirement years without worrying about financial fluctuations.
Of course, like any retirement plan, the success of the Two Bucket Retirement Plan depends on diligent monitoring and adjustments to ensure it remains aligned with your goals. Regular reviews, especially as you near retirement, can help determine if adjustments need to be made, such as rebalancing the allocation percentages or assessing the performance of specific investments.
In conclusion, the Two Bucket Retirement Plan (KISS) offers a simple yet powerful strategy to secure a fulfilling retirement. By dividing your savings into income and growth buckets, you can enjoy a reliable income source while allowing your investments to grow over time. This approach brings simplicity, security, and peace of mind to your retirement journey. So, start planning today and embrace the benefits of the Two Bucket Retirement Plan – a roadmap to financial serenity in your golden years.
Josh, What happens when you have a down market and your past 72? I have to do the minimum withdrawal, correct? Love your videos!
Definitely a constrained investor. Joint life 20 year certain for $20k income gap = $250k invested for 65 YO couple. Other 110k they can be aggressive as they'd like in the market….honey pot/LTC fund. No tightening of the belt necessary
I like it.
Good job! Thanks for doing videos also for smaller budgets/portfolios!
So what happens if year one there’s a market loss, not your 7% gain? I used a bucket approach for years, but used 5 year segments, bucket 1) 5 year SPIA, bucket 2 is a 5 year deferred annuity. I stopped this strategy when fixed rates tanked, now it should be viable option again. We only used variable rate investments at the 10, 15, 20, 25 years, and you can (in theory) go up in risk of assets the longer out you go, etc.
Good information, I like simple, first time on your channel. I’m not trying to be critical, but explaining financial success in front of an unfinished wall just seems a little out of character. I’ll keep watching because I like bucket approaches as well
What happens if you have a couple of lousy years in the market? You’re trying to pull 7% out of the equity bucket. What should have happened during the Great Financial Crisis?
Best strategy is to live off SS and your dividend income. If you can do this comfortably, you don't need another strategy.
Interesting info, thanks
So straight forward. Thank you for your simplistic explanation.
Your videos calm my nerves about nearing retirement! I think we'll be ok.
I'm still in the accumulation phase, but man keep on keeping it real because retirement is a true fact. And I appreciate all the help you give on your channel
Ok – I like this strategy. I’ve hear Joe Kuhn talk about his buckets as well. My husband and I will have pensions. How would this strategy work? Also, bucket 1 should be 1-3 years of, in our case, pension amounts vs expenses?
Could the bucket be Wellington?
Why should you assume the market will go up? The S&P and Nasdaq indices are down 19% and 28%, respectively, this year, inflation is high, and interest rates ae forecasted to go up further.
This looks like an old video. You looked thinner and more hair.
None the less, it is a great video. We followed this plan over 7 years ago and will adopt a version of it go8jg forward after FRA SS started this year.
If you're doing this movement from stocks to money market cash bucket in a taxable acct, does that transaction create a taxable event even though the money isn't being withdrawn and placed into your own bank acct?
I LOVED WHEN YOU WERE IN YOUR BASEMENT
Josh you are a great teacher of this stuff. Keep up the great videos and work !
This is exactly how I treat the G Fund in the TSP! When the market is doing well, the G fund is fatter. When the market gets lean, the G fun will feed the C fund.
Great video Josh-Taking your advice. Working fine.
Josh isn’t this a 3 bucket system? cash c/d,s..social security…and thirdly Ira/401k?
360 is not enough
Could you take the 300k and invest in dividend stocks to get a 5% return? That would net you 15k a year, it would be fairly easy to make the other 5k a year by gig work, budgeting, etc. This way you never need the capital, dividend increases should cover inflation.
Josh , Can you do a video on paying Federal Taxes on IRA or401K withdraws. I will retire soon and wondering if those taxes are paid when you withdraw funds, quarterly or at end of Tax season when you file taxes.
Love it when you use the WOWO board (wipe on, wipe off). Glad to see your voice is coming back. Looks like you have been doing some PVC work. I see purple primer and glue next to the white board. Thank you Josh!
I watched this video years ago and it worked then and it still works today. Great job Josh
Ah, the basement. Seems like it's been a while since we've been relegated to the basement. Edit: I figured out why. I thought you looked younger
Good information. Being 62 and planning on retirement in the next couple of years I found this very helpful. Thanks Josh.
Glad to see you are so optimistic ! Hope that bucket 1 can last many years.