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Using Buckets to Manage Finances in Retirement


Having different buckets for each life phase is a good way to assure you don’t run out of money while pursuing your goals.


Making the transition from saving for retirement to generating an income from those savings, to meet retirement goals, can be tricky. Key planning issues for pre-retirees include knowing how much they can safely withdraw each year and the best ways to invest their retirement funds to pay for each phase of retirement.

One way to address both issues is to use the time-honored financial management technique of maintaining different pools of assets or cash to fund different phases or needs in retirement. This approach not only fosters more purposeful investment, but also helps ensure proper budgeting to avoid overspending — or, for those overly concerned with running out of money, underspending to the point where their retirement years aren’t what they had envisioned.

A good way to set up buckets is to assign them chronologically to the natural phases of retired life. These phases are aptly described in author Michael Stein’s classic book The Prosperous Retirement: Guide to the New Reality.

Stein breaks down the typical retirement progression into 3 basic phases: what he calls the “go-go years,” the early period just after retiring, when people typically in their 60s do most of their traveling and frequently engage in other leisure and recreational activities; the “slow-go” years, when people are typically in their 70s and tend to stay home more and not engage in leisure and recreational pursuits as much because of advancing age; and the “no-go years,” when the onset of debilitating health problems tends to preclude travel and leisure — or fixing up their homes or going out to eat — for people in their 80s and 90s.

Using Stein’s catchy monikers, the nature and purpose of buckets for each retirement phase can be designated this way:

  • Go-go bucket. There’s no such thing as a typical retirement, as people have different goals and preferred lifestyles. So precisely what type of assets are right for this bucket varies with the individual. For many, most of these assets are short-term or conservative, so they’re not forced to sell when the market’s down to pay for an upcoming Mediterranean cruise or cross-country road trip. The amount of funding also depends on whether you’re going to play golf at a country club or rely on public courses, how often you can afford to eat out and in what style, and whether you’re going to continue to drive late-model cars or let your car age with you.
  • Slow-go bucket. Because you’ll probably draw on this bucket longer and won’t rely on it as much for quick cash for imminent getaways, these assets can be longer-term. As you might maintain this bucket for 10 years or more, depending on your risk tolerance, you may want to fill it with moderate-growth funds, higher yielding bonds, and dividend-paying stocks. Returns, interest, and dividends from these investments can be used to replenish the go-go bucket with cash as needed.
  • No-go bucket. Assets in this bucket should be longer term, as this is the final phase and there’s more time for asset appreciation. Again, depending on your risk tolerance, this bucket could initially be composed of growth-oriented funds, dividend-paying stocks and individual bonds or exchange-traded funds. As you age toward this phase, it’s a good idea to shift an increasing percentage of slow-go assets out of long-term investments and into more liquid ones to pay potential health care bills. What part of your total assets you’ll want to allocate to this bucket depends on your overall wealth, lifestyle objectives and current health status. It can also depend on the type of health insurance coverage you maintain to fill gaps not covered by Medicare, such as a supplemental insurance plan and long-term care insurance.

Of course, in addition to travel/leisure and healthcare, you’ll need to pay living expenses. These expenses can be taken care of out of a fourth bucket to generate income through all 3 retirement phases. This bucket should be filled with enough cash to cover living expenses for 1 or 2 years, with the rest in growth and income-oriented investments that can keep pace with the rising cost of living throughout your retirement.

Another approach is to keep buckets for each phase more modular and flexible, filling them as you go from a “mother-ship” bucket that generates income that can be distributed to buckets for different expenses. This is more of a goal- or expense-based system than a chronological setup.

How much to allocate to each bucket is a highly personal decision based on your particular circumstances. How long each phase of your retirement will last is usually driven by health-related events whose timing is impossible to predict.

Regardless of how your buckets are structured, having different buckets for different phases or needs in retirement is a good way to assure that you don’t run out of money to pay living expenses while pursuing the affordable goals you’ve long dreamed about — your real bucket list.

Eric C. Jansen, a Chartered Financial Consultant, is the founder, president and chief investment officer of Westborough, Mass.-based AspenCross Wealth Management, which provides fee-only retirement-income planning and investment management services for high-net-worth clients nationwide.

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