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Welcome to How to Retire on Time, a show that answers your questions about all things retirement, including income, taxes, Social Security, healthcare, and more. This show is an extension of the book How to Retire on Time, which you can grab today on Amazon or by going to www.howtoretireontime.com.
This show is intended for those within 10 years of their target retirement date or for those are are currently retired and are concerned about their ability to stay retired.
Welcome to How to Retire on Time, a show that answers your questions about all things retirement, including income, taxes, Social Security, health care, and more. This show is an extension of the book, How to Retire on Time, which you can grab today by going to Amazon or go to www.how to retire on time.com. My name is Mike Decker. I'm the author of the book, How to Retire on Time, but I'm also a licensed financial adviser, insurance agent, and tax professional, which means when it comes to financial topics, we can pretty much discuss whatever's on your mind. Now that said, please remember this is just a show.
Mike:Everything you hear should be considered informational as in not financial advice. If you want personalized financial advice, then request Your Wealth Analysis from my team today by going to www.yourwealthanalysis.com. With me in the studio today is my colleague, mister David Franson. David, thanks for joining me.
David:Hello.
David:Thank you. Glad to be here.
Mike:David's gonna be reading your questions, and I'll do my best to answer them. You can send your questions in anytime really during the week by texting them to 913-363-1234. Again, that number is 913-363-1234, or email them to hey mike at how to retire on time.com.
Mike:Let's begin.
David:Hey, Mike. What do you think about the bucket strategy?
Mike:Oh, this is a classic one.
Mike:Okay. So the bucket strategy, for those who don't know it, basically says you're gonna take a portion of your assets. Let's say you you, you have a bucket for your income next year, and then a bucket for your income in year 2, and then a bucket for your income in year 3 and year 4 and year 5. It's it's very similar to a laddered strategy, which some people will refer to it as. It's just structuring it out in a very kind of rigid way of a time based portfolio based on your lifestyle needs.
Mike:It follows the same principles as the reservoir strategy. I believe, though, there's less growth potential overall, but it can help significantly lower your overall risk and create more stability kind of in this more structured approach. When I say structured, I'm not talking about, like, structured notes or structured ETFs or any structured as an organized. Okay. And so here's a couple of ways I've seen people run the bucket strategy.
Mike:So first off, I've seen people just do I've seen 5, 10, 15, even 20 year bond ladders or bond buckets, And they usually do it in Excel, and they just line it all up. And it's it's a wonderful situation. I've also seen people that will ladder out annuities. So they'll they'll do like a 1 year fixed annuity, then a 2 year fixed annuity, 3 year. Then when they get to 5 years, they move into the fixed indexed annuity.
Mike:And so do a 5 year fixed indexed annuity. And then once it's liquid, then you just take the cash out that you need until the 7 year ones becomes liquid, and then you drain that one. And you're just you would need these different buckets. For those who are more experienced in bucket strategy, this is based on my observation. You can get more specific or even deliberate about your tax planning with the bucket strategies.
Mike:So you have your time frame on the income that you need, and then you also have within the bucket how much do you have in pretax, after tax, or tax free. So you're kind of anticipating what to expect when you're gonna liquidate this bucket. And then you can kind of coordinate your your Medicare, what you would expect to pay in Medicare so you can avoid IRMAA or other surcharges. Right? I shouldn't say other surcharges.
Mike:It's just IRMAA, but it's got different levels. Yeah. You can plan more deliberately your IRA to Roth conversions because you kinda know what to expect here. I work with a lot of engineers, a lot of attorneys, a lot of systems based people, and they typically gravitate more towards the bucket strategy because it's just it's more structured. It's simple to get.
Mike:So I I do appreciate it. At the end of the book, actually, I have a little quiz where some people fall into the bucket strategy or I call it the structured reservoir strategy where you're just lining things up. No problem with that at all. I would show the contrast of that of the reservoir strategy itself because growth, I think, is such an important part of any plan that do you really need to put that much of your money into a laddered bucketed strategy, or do you just need to have enough protected money to get you through the market crashes? I mean, that's that's that's my argument against it.
Mike:Because if you have less money in these protected accounts, CDs, treasuries, fixed or fixed index annuities, or cash value life insurance, kind of the the categories there. But if you have less in that group, you could, in theory, have more with higher growth potential. And if you're focused on higher growth potential, that could lead, assuming that markets overall over, like, a 10 year period of time, have more growth potential than these fixed accounts, could give you more capital or more cash to give you more flexibility in your lifestyle, could potentially get you more money to pass to the kids, could get you more money overall to to give to charity. And in in my mind, it really comes down to how can you live within your emotional and economic limits while planning around your lifestyle and legacy goals in a multi strategy approach so that you have flexibility each year on how you approach the nuance of tax changes, of market changes, of whatever it might be. The bucketed strategy is a little bit more rigid because it's harder to adapt to those changes, but it also is more predictable.
Mike:So there there is always a a benefit and detriment to each thing. I have found that most people I work with like the bucketed strategy for the first 5 years, and then they transition into the reservoir strategy after 5 years. That seems to be a very common solution. Alright. Very few, if if any, people I work with go straight into the reservoir strategy just because they're not prepared.
Mike:They didn't do the preparation. They didn't start 5, 10 years before they wanted to retire. So it just that transition into the reservoir strategy. You can't just, in one day, follow the reservoir strategy. But also, I don't know if if anyone can rationalize just keeping all of your assets at risk.
Mike:That's a risky thing to do. A whole portfolio and bonds bond funds and and, and stocks or equities. Let me look at Stanford's research on this. Shortly after 2008, Stanford came out with research saying, hey, maybe this isn't the best idea. Maybe we should do something more based in economic fundamentals.
Mike:Sure. Then this idea of outgrowing your assets. So I do like the bucket strategy. I think it's a wonderful strategy. I think, though, a long bucketed strategy may not be as good for your overall growth and ability to adapt as things evolve over time.
Mike:But if you wanna dive deeper into the bucket of strategy, your version, you wanted me to see your Excel sheet and review that and compare it, point out some potential problems, see other ways that it could be structured, other ways you could set up your portfolio based on your lifestyle and legacy goals and the strategies you wanna implement, then go to www.yourwealthanalysis.com today. That's www.yourwealthanalysis.com today to request your no cost analysis, where we're gonna chat for 30 minutes to understand your lifestyle legacy goals. And then we'll run a 60 minute analysis with you to we're going through the differences of how would this work in a flat market cycle? How would this work in a market crash? How would this change if there was interest rates going up or down?
Mike:Or, you know, we wanna throw on the the stress tests. But it really falls all under the idea of planning. The idea that predetermined guidelines or strategies help increase your probability of future success, that if you know what you're gonna do when the markets are up or down next year, it's a lot less stressful. If you know what you're gonna do if if either presidential candidate gets elected, it's a lot less stressful. Instead of trying to guess what's gonna happen, just be ready for both.
Mike:And that's really, I think, what the bucket strategy tries to do and what I believe the reservoir strategy does better at. But I'm biased because I came up with the reservoir strategy and wrote about my book. But, yeah, go to www.yourwealthanalysis.com to get started today. Won't cost you a dime, but really could open your eyes into additional potential efficiencies that could help you get more out of your hard earned money. That's all the time we've got for the show today.
Mike:If you enjoyed the show, consider subscribing to it wherever you get your podcast. Just search for how to retire on time. Discover if your portfolio is built to weather flat market cycles or if you're missing tax minimization opportunities that you may not even know exist. Explore strategies that may be able to help you lower your overall risk while potentially increasing your overall growth and lifestyle flexibility. This is not your ordinary financial analysis.
Mike:Learn more about Your Wealth Analysis and what it could do for you regardless of your age, asset, or target retirement date. Go to www.yourwealthanalysis.com today to learn more and get started.