Okay, so you’ve slaved away for years, while wisely putting money away for retirement. But now that it is upon you, where will you get your income from? Do you pull from your retirement account? Do you first draw down on your savings account? These are challenging questions, that many guess their way through.
Consider the Bucket Approach as a way to create retirement income and a withdrawal strategy. There are several methods to the bucket approach, but for this blog post we will only touch on the time-segmented bucket approach.
The idea is to create three buckets of money, where the income yielded from each portfolio flows down. Each bucket represents a time segment for when the funds would be needed and broken down into a long-term bucket, an intermediate-term bucket, and a short-term bucket. The short-term bucket represents funds needed in the next five years. the intermediate-term bucket is for the second five years, and the long-term bucket represents expenses for the rest of your remaining life.
Correspondingly, the short-term bucket is conservative, working it’s way to an aggressive portfolio in the long-term bucket. The income can flow to the bucket immediately below it, as to replenish the fund needed in each. Typically, the short-term bucket is made up of a high-yielding money-market account. The intermediate-term bucket can be a taxable brokerage account, while the long-term bucket is typically longer-term funds, like a retirement account.
This strategy helps manage the dilemma of where to pull funds from in the most-efficient manner to fund an additional twenty plus years without employment income. By establishing a spending plan in retirement, you can be better prepared for those un-chartered waters.
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