The Bucket Strategy for Retirement

Do you have enough money to live on without sacrificing a comfortable lifestyle once your working days are done? Have you started thinking about it yet? As retirement looms, it brings along a suitcase loaded with questions, such as: how long are you going to live, how much of the money you have managed to save up to this point will be gobbled up by inflation, and just what is the money you’ve already got in your various investments doing?

The 4% Rule Doesn’t Work Anymore

Since you can’t just go out and work for a long enough period of time to make up the deficit if you miscalculate, it’s important to estimate right the first time. For a long time, people who gave advice on financial matters suggested something called the “4 percent rule.” This strategy advises you to take out an amount equal to 4 percent of the total invested during the first year that you are no longer working; then the next year, withdraw the same amount as the previous year, and add enough to account for inflation. This method, experts previously suggested, provided most people with better than average odds of making it through at least 30 years at their current lifestyle.

Get a Bucket

In light of the recent stock market roller coaster, however, those in the fiscal know have decided that this method is a bit too oversimplified. Currently, more than half of those who provide investment advice are now recommending that their customers divide their rainy day cache into sections, or buckets, to carry them through with funds they can count on to remain stable.

Filling Your Bucket

Here’s how it works: first, you need to decide on a safe amount of money to remove during your first retired year, then, multiply your designated figure by however long you want a definite amount of income- the average is usually between five and seven years, including a secured amount that takes inflation into account. Once that is done, the funds are placed into a money market account, in order to make sure that you always have a pull-from rate that will sustain you during those years.

When your vat gets close to being empty, or every year, depending on what happens with the stock market, refill it with other prudent investments that will provide enough money to live on throughout the next cycle. This process is then repeated for the remainder of your retirement.

Try Two Buckets, or Even Three

There are two suggested types of bucket strategy: 2-bucket and 3-bucket. The 2-bucket model encourages golden-agers to squirrel away roughly five years of savings in bonds issued by the Treasury Department. Every year, take a set amount from the bonds to live on and then use the remaining funds to invest in stocks. When the year ends, any income earned from the stock growth gets shifted into the bonds for a little boost to next year’s income. If the stocks don’t earn money, the money should be left in the investment, giving it a chance to bounce back. The withdrawals can be adjusted as needed, in case of unforeseen shortfalls or poor stock performance.

Those seeking a bit more cushion might prefer to split their funds among 3 kettles. Into the first vat would go sufficient resources for the first seven years of retired life, including enough extra to account for any economic intensification, which is then placed in a secure investment such as a Treasury bond. The second container would account for the next eight years, from 8 to 15, and would consist of either annuities that would provide secure assets, or a mixture of stocks and bonds. The final bucket, which would cover the remaining years, would hold the most high-risk items, such as real estate. A full year’s worth of income is moved among the buckets annually, depending on what the stock market does. Obviously, this is an intricate set of plans, but it will certainly make your retirement funds safer.