Interest money

Lots of money for retirement!

Let’s talk about financial “baskets”.

During their working years, most people put all of their retirement savings into a bucket labeled “growth.”

This bucket usually consists of investment portfolios of stocks, bonds, cash, and maybe real estate. Although these asset classes have different characteristics, together they share the likelihood of long-term growth.

Of course, market volatility can suddenly affect the value of some growth-tier assets. Thus, as retirement approaches, most make a strategic move. They sell stocks and transfer that money into bonds.

The idea is to reduce the risk of his account value dropping significantly just before retirement. Knocking over your bucket when you need it would be devastating.

It’s a snapshot of early retirement. What about after the work stoppage?

I recommend getting more buckets. In fact, I suggest four:

1. An income bracket. Everyone wants to know, “How much income can I generate with the money I’ve saved for retirement?” After all, that’s why we save for retirement – ​​to have a stable income once we’re out of work.

In years past, it was easier. My dad retired and found municipal bonds paying 8% and 9%… no income tax! (If only…)

If your plan is to live off the interest generated by your assets, I have news for you. With interest rates at historic lows, you’ll need to devote a massive portion of your retirement assets to your income bracket.

2. A bucket of longevity. If you’ve saved $100,000 for retirement and your annual income needs are $50,000, you can have a wonderful retirement…for two years. After that… not so much.

Indeed, outliving their money is one of retirees’ greatest fears.

That means you need a bucket of longevity. But it gets tricky. The more assets you incur in your longevity bracket, the less you will have for your income bracket. You may have to dip into your bucket of longevity just to pay the bills! (You know what I mean?)

You will also need…

3. A cash basket. Do you think you should buy a car (or two) when you retire? What about a new roof? Suppose you have big medical bills. Or end up being one of the 25% of Americans over 65 who need long-term care. (That cost alone can exceed $100,000 per year!) Better put cash in a bucket of cash!

Just be aware that if you need to pay for important items or emergencies, it can quickly drain your cash reserve. At some point, you may need to withdraw from your longevity basket and/or your income basket, which could leave precious little for…

4. An inherited bucket. Most people, as they age, have a growing desire to care for the people they love and the causes they believe in. They want to leave something tangible behind.

Call it a legacy bucket. For many, it is the bucket that provides the deepest sense of purpose and joy.

Many people come into retirement and try to do all of these things with one bucket. The problem with this approach? When the bucket is empty, the only solution is to refill it with water. This is difficult for most people to do when they are no longer working.

So, concretely, how do we implement this four-bucket strategy?

We’ll talk about that next week.

Until then, if you’re thinking about retirement, I’ve created a comprehensive checklist of pre-retirement questions for people over 60. It’s free if you want a copy. Just email me at [email protected], and I’ll get it to you right away.

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