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Use a Cash Bucket to Avoid Delaying Retirement

Updated: Feb 17, 2023

Roughly 10,000 baby boomers retire daily. If you are within a year or two of retirement you may have concerns about a major downturn in the stock market. Many individuals delay retirement because they don’t fully appreciate stock market risk.

There are ways to lower the impact of market risk on your retirement plans.

Confident in retirement plans because of cash bucket strategy
Use a cash bucket to keep your retirement on track

When you shift from working and investing to relying on retirement distributions, the story can change.

While you are saving in your 40’s and 50’s it can be easier to ignore the stock market. After all, you still have a steady paycheck and retirement may still be years in the future. When you are six months away from retirement you might be checking your portfolio daily and asking whether you have ‘enough’. It’s easy to fall into this pattern. After all, when most folks retire, they live predominantly off their investment portfolios and social security.

There is a risk that the first year or two of retirement withdrawals from your nest egg may coincide with a period of declining stock prices. If you hold stocks for growth in your portfolio, you should work with your advisor to plan for this possibility.

Due to Russia’s war with Ukraine, rising energy prices, and inflation concerns, US Stocks as measured by the S&P 500 Index fell 20% during the first 6 months of 2022. Imagine if you were set to retire and your $2 million nest egg dropped $400k to $1.6 million. How would that make you feel?

If your portfolio fell 20% would you delay retirement? Prepare for stock meltdowns before you begin retirement.

One strategy to reduce the risk of a stock market meltdown derailing your retirement is to use a Cash Bucket Strategy for your portfolio. This means having 3 years of cash or low risk bonds set aside to meet spending needs at the start of retirement. This prevents you from selling stocks during a downturn. In addition to a Cash Bucket, your retirement portfolio should include an Income Bucket and a Long Term Growth Bucket to combat inflation. Possible investments for each bucket are shown below.

Understand how a cash bucket strategy can positively impact retirement planning
Keep a stock market downturn from derailing your retirement by using a bucket strategy

It’s important to work with your financial advisor and determine how many years you want in your cash and income buckets. This will depend on your fixed sources of income such as social security or an annuity, as well as your comfort with stock market fluctuations in your riskier Income and Long Term Growth buckets.

One strategy to reduce the risk of a stock market downturn delaying your retirement is to have 3 years of cash or low risk bonds set aside to meet spending needs in your first few years of retirement.

Consider creating an income bucket for years 4 to 9 of your retirement. This might include bonds with medium term maturities, Certificates of Deposit, dividend paying stocks, real estate investment trusts (REITs), and Master Limited Partnerships (MLPs). Your long term growth bucket will provide appreciation and help you overcome inflation. This might include riskier stocks, lower rated bonds, and possibly commodities. The specific investments you choose will depend on your risk tolerance and your financial advisor’s recommendations.

If you are mentally ready to retire and have a large enough nest egg to retire, creating a retirement spending strategy that uses Cash, Income, and Growth buckets might be the recipe for you to avoid delaying retirement in the event of another market correction.

Final thought.

Are you planning to retire within the next few years? Do you need help creating a retirement Cash Bucket? Is your portfolio prepared to support your retirement spending needs?

If you have a net worth over $2 million and need help from a wealth manager, the Peak Wealth Planning team can assist you.

Peak Wealth Planning specializes in helping high-net worth individuals and families plan for the future.

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About the Author

Peter Newman is a Chartered Financial Advisor (CFA) and president of Peak Wealth Planning. He works with individuals nationwide that have accumulated wealth through company stock, ESOP shares, real estate, or running a business. Peter applies his unique background to help clients achieve their specific goals and enjoy peace of mind.

Peak Wealth Planning provides concierge services to meet your wealth management needs. Services include: financial planning, investment management, esop diversification, retirement income, insurance, and estate planning advice. Peak Wealth Planning is a fee-based financial advisor based in Champaign, Illinois, and Fraser, Colorado.


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