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EP 73 - Bucket Strategy for Retirement

In today's episode, I want to talk about a bucket retirement strategy I use with my clients. No, I'm not talking about pickle buckets, which I promise I will explain at the end. We've seen some serious volatility this year in the market. We haven't seen this sort of swing in roughly 15 years. If you're looking too closely at your investments this year, you know we have had volatility all the way through. Most of the cause before was due to inflation and unknowns about the interest rate changes. Things like the invasion of Ukraine certainly have not helped either. Lucily the concept I want to discuss today isn't affected by volatility, at least in the short term. The bucket concept is simple. However, the execution is more complex. Join me to learn more about it.

You will want to hear this episode if you are interested in...

  • Bucket concept in a nutshell [1:26]
  • Bucket #1 [2:47]
  • Bucket #2 [3:03]
  • Bucket #3 [3:42]
  • When in retirement will you use each bucket? [5:41]
  • The pickle bucket story I promised [8:42]
  • This week’s FLASHBACK [9:42] 

What do you mean buckets?

Buckets are something I use for some of my clients. They aren't designed for those accumulating assets, but more for those within a few years of retirement or already in retirement. Here is the concept in a nutshell, you divide your investments into buckets. The number of buckets is up to you, I use three in my plans. First bucket is the most conservative Bucket two it's a little bit more aggressive, but still on the conservative end of the investment spectrum. The final bucket is the most aggressive of the three. Here's where the complexity starts to come into play. 

How much money you should have in each bucket is based on things like spending, rates of return, inflation, income sources, taxes, and a few other items. The most important factor in determining your bucket allocation is once again, the item I focus on the most with retirement, your spending number. Without knowing your spending number, we are just guessing completely and randomly.

What goes in each bucket?

The goal for the first bucket is to use this to fund any income needs you have the next few years. Hence the reason it's so conservative. No reason to take any sort of risk with that part of your investments that you plan to access the next couple of years.

Bucket two is still conservative. However, it makes a little bit of sense to get slightly more aggressive as you won't be touching these funds for a few years. Maybe you can add in a little bit of stocks, but on the more conservative side.

The third bucket is the one you won't touch for a longer time. I run my bucket strategies anywhere from 8 to 12 years before a client touches this third bucket. Because of this, we can be more aggressive. Aggressive is subjective. For some buckets this may be 80% in stocks and in other client's it may be 50%. It all depends on the client. I don't work in a one size fits all world where I shove clients into my models. I build around them. 

This week’s FLASHBACK: Hiking Trails - Goodyear Heights

Since spring is officially here I figured I would share another hiking spot that I enjoy. It's Goodyear Heights Park in Akron. The park itself is another one in the Summit County Park System. Goodyear Heights is a large park, especially for a city park. There are open fields, big hills, and some great trails throughout the woods. I discovered this park because my sons both used to run cross country and this is a popular cross country course. Between the trails, the open fields, and also the hill for speed training it has a little bit of everything for runners. Plenty for walkers like me too. 

Resources & People Mentioned

I’m Dan Johnson, CFP®, founder of Forward Thinking Wealth Management. I run a flat-fee financial planning and investment management firm located in beautiful Akron, OH. Although I am in Akron, OH, I work with clients regardless of location. I cater to owners of equity compensation positions who are looking to organize their financial lives, keep more of what they make, and do the things they want in retirement and even now.