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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What about inflation?
need more cash reserves in bucket #1, too much uncertainty with market rebound timing. a 5 year bucket #1 would be better. more sleep at night knowing you have 5 years for the market to rebound before touching. Plus you have no emergency bucket for auto and home repairs.
I have a gov pension coming my way as well, I assume you treat that as a bond as well?
Great video. I have a clear road map now to retirement, you are the best!
What do you think about this criticism of the bucket plan?? https://youtu.be/fNP62fSLg1U
Good plan. I will have $1840p mo pension can wait for Soc Security. But I don't have anything in Cash Bucket? Was going to draw it from $400k 403b? Guess I waited too long? Am 60, Will prob retire next year? So just withdraw what I need in 1st year waiting for markets to come back to Fill my Bucket? Or bite bullet and take withdrawal in dow. Market to Fill Cash Bucket ?
Inflation must also be factored in
Watching this makes me feel like I’m in Tony Soprano’s basement.
Only problem I have with this is inflation. July 2021 inflation 5.4 %. If that keeps up, Houston…we have a problem
Great video, but get the clear pvc solvent and the purple primer off that fire block! Someone may think a plumber is giving out financial advice.
I love in a retirement area (oceanside ca) 276 homes in my area….I dont know anyone who has 300,000 in any account… I moble home property was for sale a couple years and the suggestion was for the residents to buy the park come to find out that 68 percent were living at or below proverty level . you lecture is like a lot of the money program. dreamer
very good illustration !
Great video. I had watched videos about the 3 bucket system and had asked myself why I would need the second bucket. You cleared that up, my second bucket I'll consider SS.
In my situation, I expect to pull from bucket 1 for up to 10 years before needing anything from bucket 3.
What happens if your stock allocation grows more than you need for the three years? Is it safe to leave it there or should you drag it over into cash?
Great examples… and really helps me in my situation. I’m 60, expecting to retire at 67. My SS will be around $3k per month (similar to your example). I have ~$175 now in 401k, Roth IRA, and brokerage accounts… but I’m saving like a madman now (over $30k per year for next 7 years). Hoping to have around $500k at retirement, which should give me around $20k per year from retirement funds, while continuing to grow. I’ll adopt the two bucket system with maybe $80k (4yrs) in cash and remaining $420k+ in mostly stock portfolio. Sleeping a little easier now! Thanks!
How about the good ole boy Christians that say they are relying on the everlasting arm of God then get petrified when they see Jesus walking through a puddle in front of their bank?
The best financial insurance you can give yourself before retirement is a stable and growing stock portfolio. Working 9-5 for 14 years only to be close to retirement and discover passive income. I worked my butt for me family and I regret nothing but receiving $20k-$26k a month from good stocks and fx trust me they is no better retirement plan than this.
Wish I saw this 2 years ago. Whatever’s. This is how to do it. Thanks Josh
Congress printed 10 Trillion dollars to spend on themselves, and we wont get SS thanks to Trump. Come on man!
This is mind blowing!!
I like this guy… Seems that he's the kind of person that will slap a whining-crying person in the face someone in the face just for they come to their senses.
Awesome video!
This is brilliant.
So, if I have Traditional TSP balance of 800K, split 650K into C fund and 150K in the G fund, then use G fund money to fill the gap remaining in the lowest tax bracket. At end of year, take profit (if any ) from C fund, and replenish G fund. Do this for 3-4 years – and eventually spend all Traditional TSP money before drawing SS
Your tax liability approach is fast talk.
You had not addressed capital gains taxes accrued in the portfolio. You are assuming a definite 7% return. Bad presentation.
Simple. I get my S.S. check and I rent out my house (free and clear). Each pays me est. $1800 x 2 = $3600. Cost of Living overseas is half of what it is here. Can enjoy a nicer life cheaper in Greece, Morocco, Mexico, Taiwan, Malaysia, even parts of France and Portugal. And I never sell the house or touch my portfolio
Haha… watching this video in 2021 and Trump/Ryan did nothing nefarious to SS. All that worry for nothing. Now Biden is raising taxes and increasing spending. There's the real worry.
Do you have a video on Roth conversions?
Great plan!
This is a GREAT video and super easy to understand!!!
Wow! Great explanation, and very engaging 🙂
Me
$2400 take home per month pension
$1200 take home per month SS
No debt
No mortgage
No rent
No credit cards
No car
No bills at all.
Living expenses about $700
No bonds? Build the original 360k with a 60/40 split, but then after moving 60k to a liquid position, then change the investment for the remaining 300k to stock only?
KISS. I use a one bucket system. I would just make sure that I put more money in the bucket than I take out.
Bonds won't be a viable investment for awhile. You may have 2-3% coming in from dividends, but as interest rates rise you be losing 2-3% in value leaving you with 0% return and taxes due on the dividends. Retirees are screwed. Maybe a better conservative alternative to bonds would be consumer staples, utilities, healthcare stocks that pay dividends and have some hope of price appreciation.
No interest anymore. Plus free college, daycare, healthcare, forgive student loans, green new deal is going to create a lot of inflation. No longer will old people spend less as they age. Even if they tighten their belt, their spending will stay the same at best. Retirees are going to get screwed. Find a job you love and work until the day you die.
Great plan for those of typical retirement age! Could you do a similar video for people who plan to retire earlier, a few years before being eligible to withdraw from 401k, IRAs and too young for social security?
Most American families retire with 1/2 of one bucket.
This is so old. Worry more about the Democrats that want to tax everything.
Excellent Job!
thanks a lot for great info!
This guy is a great, explains it in layman’s terms so the average Joe can understand! Thanks for great videos!
I like the concept, but I would like to grow my wealth during retirement. Would I have a third bucket just for growth?
Thank you you took a big worry out of my back now I know now lucky I am