retirement

A Simple Retirement Income Strategy: The Two-Bucket Approach

Photo by Lucas van Oort on Unsplash

One of the most common questions we hear from Wyoming retirees is: “Will I have enough money in retirement?”

After hundreds of conversations over the past decade, we know retirement can be both exciting and intimidating. Replacing a steady paycheck with withdrawals from your savings raises an important question: How can you make your money last for 30 years or more?

One retirement income principle we use at Hale Financial is the bucket approach.

LOOK AT RETIREMENT AS TWO BUCKETS

We find it helpful to view a retirement portfolio as two distinct buckets: a growth bucket and a safety bucket.

This simple framework can help retirees stay focused during market ups and downs and better understand the role each part of their portfolio plays.

THE GROWTH BUCKET

Occasionally, we meet retirees who want to move entirely out of the stock market once they retire. While the desire to protect savings is understandable, avoiding growth investments altogether can create challenges.

First, retirees must contend with inflation. Over time, rising prices reduce the purchasing power of your savings. As an example, the Whopper meal I buy more often than I care to admit costs about $11 today. I have little doubt that one day it will cost $15, then $20, and eventually much more. That's inflation at work.

Stocks and other growth-oriented investments have historically helped investors keep pace with inflation, making them an important part of many retirement plans.

Second, growth investments create opportunities beyond simply generating income. A portfolio that continues to grow may support goals such as leaving an inheritance, making gifts to family, or increasing charitable giving.

THE SAFETY BUCKET

Growth investments come with volatility, which is where the safety bucket comes in.

While no investment is without risk, setting aside a portion of the portfolio in investments such as short- and intermediate-term bonds or money market funds can provide retirees a source of income that is generally less affected by stock market declines.

This can help in two ways. First, it may reduce the need to sell stocks during market downturns, giving investments time to recover. Second, it can provide peace of mind. Knowing that part of your portfolio is designed for stability can make it easier to stay committed to your long-term investment strategy.

IN SUMMARY

A successful retirement requires balancing growth and stability.

The growth bucket helps combat inflation and supports long-term goals, while the safety bucket helps provide reliable income and stability during market downturns.

Viewing your retirement portfolio through this two-bucket framework can help reduce anxiety during periods of volatility and increase confidence that your retirement plan is built to last.

Half Marathon Woes and Retirement Mistakes

Lifting my hand to my brow around mile 7, I knew I was in trouble. I was a little over half way through the Star Valley Half Marathon race, and I had stopped sweating and was feeling lethargic. This was a clear sign that if I didn’t slow down and get some liquids, my safety would be at risk.

When I signed up for the race with a goal of finishing in under two hours, I was determined to not have to walk during any part of it; and I followed a training routine that had me well prepared to go the distance. Now it didn’t matter. I knew in my heart that I had to walk and work on refueling.

Fact Check: Can Wyoming Retirees Live On Social Security and $100k?

A Wall Street Journal article caught our attention recently. The headline read “You Don’t Need to Be A Millionaire to Retire.” Hale Financial has enough non-millionaire retired clients that we know this to be true, but the article explained that of a group of retirees surveyed who had less than $100,000; over 70% of them said they were doing fine financially.

“Ok, what’s the catch?” There are some catches to living a retired life with less than $100,000, but after analyzing what we’ve learned working with many Wyoming retirees, we’ve found that it is possible, with certain limitations.

Exploring COLA Options in the Wyoming Retirement System Pension

The Wyoming Retirement System (WRS) pension is an impressive retirement plan, offering guaranteed income to thousands of Wyoming employees across hundreds of employers. 

Among its many features, a cost of living adjustment, or COLA, is available at varying amounts. This feature helps your benefit keep pace with inflation, but it reduces your payment initially. When does opting for COLA make sense, at what levels, and what is the financial impact?

Ways to Combat Inflation in Retirement

The financial shock of soaring inflation in 2022 caught everyone off guard. Within a matter of months, the price of rent, fuel, and countless consumer goods went through the roof. Having been in a period of relatively low, calm inflation for decades led us not to worry about this financial expense, until things went really wrong.

While inflation is now trending downward, inflation is historically always present, and there’s still a threat that unusually high inflation can rear its ugly head once again, especially given that most retirees expect to live another 20 to 30 years once they leave the workforce.