Planning for retirement is one of life’s biggest financial challenges. The question “How much money do I need to retire?” can feel overwhelming, but The Bucket Plan © approach provides a clear, structured framework to help you answer it confidently.
The Bucket Plan ©, a strategy made popular by Jason L. Smith, organizes your finances into three distinct "buckets" based on your time horizons and goals. By dividing your assets into these categories, you can align your retirement savings with your needs and reduce financial stress.
Let’s break down how The Bucket Plan helps you determine how much money you need to retire.
Understanding the Three Buckets
1. The Now Bucket
This bucket is for immediate and short-term needs. It includes cash and liquid assets to cover:
- Daily living expenses (e.g., groceries, utilities).
- Emergency funds (e.g., unexpected repairs or medical bills).
- Healthcare costs (e.g., insurance premiums).
Goal: Ensure liquidity and avoid having to sell investments during market downturns.
Amount: Typically, this bucket holds 6–12 months’ worth of expenses.
2. The Soon Bucket
The Soon Bucket bridges the gap between your immediate needs and long-term investments. It includes low-risk, income-generating assets such as:
- Bonds.
- Certificate of Deposits (CDs).
- Dividend-paying stocks.
Goal: Provide stable income to cover expenses for the next 5–10 years.
Amount: Enough to fund 5–10 years of retirement income, adjusted for inflation.
3. The Later Bucket
This bucket focuses on growth for your long-term goals and legacy planning. It includes higher-risk investments like:
- Stocks.
- ETFs or mutual funds.
- Real estate or alternative assets.
Goal: Outpace inflation, sustain retirement, and leave a legacy for heirs or charitable causes.
Amount: The remainder of your savings allocated for growth over 10+ years.
Determining How Much Money to Allocate
- Calculate Your Annual Retirement Expenses
Start by estimating your annual living costs in retirement. Include: - Housing (rent, mortgage, taxes, and maintenance).
- Utilities, groceries, and transportation.
- Healthcare and insurance premiums.
- Travel, hobbies, and discretionary spending.
Example: If you anticipate needing $60,000 annually, your Now Bucket should hold at least $30,000–$60,000 (6–12 months’ expenses).
2. Factor in Social Security or Pension Income
Subtract any guaranteed income sources like Social Security or pensions from your annual expenses.
Example: If Social Security provides $20,000 per year, your shortfall is $40,000.
3. Determine Your Soon Bucket Needs
Multiply the annual shortfall by the number of years your Soon Bucket should cover (typically 5–10 years).
Example: $40,000 × 7 years = $280,000 for the Soon Bucket.
4. Allocate the Remaining Savings to the Later Bucket
After funding the Now and Soon Buckets, allocate the rest of your savings to the Later Bucket for long-term growth.
Why This Approach Works
The Bucket Plan’s segmented structure provides clarity and confidence:
- Peace of Mind: Your short-term needs are secure, allowing you to focus on enjoying retirement.
- Risk Management: The Soon and Later Buckets protect your savings from market volatility and inflation.
- Flexibility: Regular reviews ensure your allocations adjust as your needs evolve.
By focusing on the question of “How much money do I need to retire?” through the lens of The Bucket Plan, you can simplify a complex process and move toward retirement with confidence.
Next Steps
As a licensed Bucket Plan Advisor (BPA), I am here to help guide you through this process with expert knowledge and personalized strategies. Working with us at Evergreen Wealth Advisors ensures that you have access to a professional who is trained in the intricacies of The Bucket Plan methodology and adheres to the highest industry standards. You benefit from tailored advice that considers your unique goals, risk tolerance, and time horizons, helping you optimize your retirement savings for both security and growth. Additionally, we will provide ongoing support, adjusting your plan as your needs evolve and ensuring that you remain on track to meet your retirement objectives.
f you're ready to create a retirement plan that brings clarity and peace of mind, I invite you to reach out today. Together, we can build a strategy that works for you—one bucket at a time.
Contact me today to schedule a consultation and start your retirement journey with The Bucket Plan.