Retirement Answer Man #260 - How to Live Without a Paycheck: Building a Bucket System
You may have heard me talk about the bucket system on previous episodes. People often wonder how they will tap into their funds when they retire. They wonder if they should just sell assets when they need some money. Well today, I teach you how to live life after your paychecks stop coming. You’ll learn the process on how you create your own bucket system so that you can create your own steady paycheck. Are you ready to learn how to set up your retirement paycheck so that you can be intentional about creating a great life? Listen to this episode to learn how to build your own bucket system so you can rock retirement.
5 retirement tidbits that I have picked up along the wayWorking with retirees causes me to do a lot of research about retirement. Here are 5 tidbits I have learned over time.
- Our perception does not always line up with reality.
- Loneliness will shorten your life as much as smoking and drinking. Loneliness is scary because it creeps up on you. It is so important to continue to generate new friendships and connections. Friendships increase the quality of your life.
- Transitioning from the accumulation phase of life to the decumulation phase can be a challenge. You can look at the decumulation period like a vegetable garden. You have watered your garden over the years and now it is time to harvest.
- Spreadsheets can’t give you the whole picture. Many of you are orderly people that like to research and plan. Just remember that the art of all of this planning gets lost in spreadsheets. Retirement is so much more than just numbers on a page.
- Extensive social media use can lead to depression. Remember that what people post on social media is a fictionalized version of their life. Its like looking at the cover of a fashion magazine, all glossy and perfect. This is not the reality of people’s lives.
In the past people just sold assets as they needed when they retired. But there is a better way to organize your finances. A bucket system creates cash reserves to fund consumption over and above what you keep in your normal emergency fund. It is the process by which you create your own paycheck in retirement. You create a payroll ‘bucket’ funded with 2 years of spending needs. You set up a way to pay yourself on a regular basis into your checking account. Creating a bucket system gives you clarity when you wonder where the money will come from in retirement. It can help you navigate this major change in your life. Listen to this episode of Retirement Answer Man to learn more about creating a bucket system to fund your retirement.
What are the advantages and disadvantages of the bucket system?The bucket system has both advantages and disadvantages. Having this system in place can help you control your spending. Oftentimes when people retire they have a lot of liquid assets on hand, maybe even more money than they have ever had access to. Couple that with newly acquired free time and you could run into a big problem. The bucket system helps control a natural flow of money into your checking acount. It helps you work in an automatic fashion. The bucket system also provides visibility in a volatile world. It can give you some leeway to make adjustments as you need them.
If you have a growth mentality the bucket system may seem inefficient. When the markets are hot you can feel like you are missing out. This cash flow system can force you to be more conservative that you may want to be. On the other hand, 2 years of cash reserves can feel a bit tight in a major financial crisis like that of 2008.
How do you set up a bucket system?How do you put this bucket system together? First of all, you need 2 years of your base needs that you have already counted the cost for. You also need 1-2 years of your wants and wishes. When setting up your bucket, remember your social payment and your income from other sources. You can subtract these from how much you need in your account.
Step 1 - to identify the deficit after adding up your various income.
Step 2 - fund your cash reserves by creating a payroll account. Pro tip- don’t have it in the same place as your checking account.
Step 3 - set up a payment system from your cash reserve payroll account to your checking account.
By creating a bucket system you recreate that rhythm you get from having a paycheck. You want to have that rhythm in place so that you don’t have any missteps.
OUTLINE OF THIS EPISODE OF THE RETIREMENT ANSWER MAN HOT TOPIC SEGMENT- [3:02] 5 Retirement tidbits that I have picked up
- [14:37] What is the bucket system?
- [16:55] How does a bucket system help you control spending?
- [18:34] What are the disadvantages to the bucket system?
- [20:44] How do you set up a bucket system?
- [25:43] Understand how to communicate with those you love
- [28:02] Go tell your loved ones that you love and appreciate them
- [28:41] Fund your emergency fund
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