Today we’re going to continue sharing thoughts from the book How to Retire by Christine Benz.
It’s a great book which I highly recommend. And as with the last article, I’ll be giving away a copy of the book at the end of this post.
We’ve already posted on this book as follows:
You may want to check these out if you missed them.
Today we’re going to cover three more chapters from the book.
Bucket Strategies
In chapter 11, Christine is interviewed herself about her thoughts on a bucket strategy for retirement.
For those of you who don’t know what a bucket strategy is, Christine addresses that as follows:
A bucket strategy — holding cash reserves that can be used to meet living expenses in periods when the long-term portfolio has lost value — can provide valuable peace of mind for retirees in periods of market volatility.
If you want to know a bit more, here are some thoughts from Smart Asset:
The first bucket typically holds cash and other low-risk, highly liquid assets meant to cover immediate living expenses over the next few years.
The second bucket often includes a mix of bonds and other moderate-risk investments designed to replenish the short-term bucket as funds are used.
The third bucket focuses on long-term growth, usually containing stocks and other higher-risk investments that can compound over time to offset inflation and support income needs in later years.
Together, these buckets aim to balance stability, income and growth.
The Many Worlds of Bucketing Strategies
There are about a million ways to create a bucket strategy. The most common ones I’ve seen include cash/cash-like investments for the first 2-3 years, higher-yielding but still relatively safe income producing investments (bonds, CDs, etc.) for years 3-10, and long-term investments (like index funds) after that.
I simply went with cash/income from side hustles, which was easier to implement, more fun, and less hassle to plan/implement, and didn’t require moving some index funds to other investments. So far, it’s worked out well for almost a decade.
Christine makes a similar point (about how many bucket strategies there can be) as well as emphasizes that the first two buckets are generally meant for the first 10 years of retirement with this:
Bucket portfolios are eminently customizable: Retirees can use their anticipated portfolio spending to determine how much to drop into their cash bucket as well as their bond allocation. Ideally, a retiree would hold between seven and ten years’ worth of portfolio withdrawals in cash and high-quality bond assets.
Then she adds this, which I haven’t seen before:
For retirees who are planning to cover any long-term expenses out of their own coffers, a fourth bucket, earmarked for long-term care and segregated from the spendable portfolio, can help provide peace of mind.
I would personally just add big costs (weddings, college, cars, etc. can also be in this group) like this to my budget and plan that way. I’m not sure how creating an extra bucket for these helps. It sounds like it just complicates life — unless she means you need to regularly convert some long-term investments to shorter-term income-producing assets regularly.
Anyway, she (and we) end the chapter with this:
Retirees who have multiple accounts — traditional, tax-deferred, Roth, and taxable — will want to factor in their planned sequence of withdrawals from those accounts when determining the asset allocation for each sub-portfolio. Accounts that will be earlier in the spending queue, usually taxable holdings, should be more conservatively positioned, whereas those that will be later in the queue, such as Roth, should be more aggressive and stock-heavy.
In case you’re wondering, generally the retirement withdrawal order is as follows:
- Taxable accounts
- Tax-deferred accounts (like traditional IRAs and 401(k)s)
- Tax-free Roth accounts
And with that, we move on…
Smart Housing Choices
Chapter 12 is an interview with Mark Miller, an “author and veteran journalist.” Uh-oh.
As you know from some of my past posts, I’m fairly skeptical of journalists since their whole occupation is centered around trying to look like experts when they actually have little/limited knowledge in the area they are covering.
In this case, Mark does make some comments worth considering, starting with this:
It’s important to understand that most people don’t move when they retire. That’s a media myth. And when people do move, they generally don’t move very far away. But if you’re considering a move, ask yourself these questions: Is your location close enough to healthcare that you want to access — hospitals, physicians, and so on? Is the current location still a good fit considering your needs for transportation, walkability, and the like? Would another location be better for proximity to family and friends or are you already well situated for that? These are all important factors, but they tend to get drowned out in the overwhelming amount of clickbait information online about retiring to tax-friendly or sunny locations. That may be right for some people, but people need to really think it through.
I could have used this suggestion before I left Colorado and moved to Florida as it would have saved me a couple years of frustration.
Then again, I wouldn’t have been open or smart enough to listen to it, so hearing it years ago probably wouldn’t have mattered.
In the end, it all worked out as we’ve landed in a place we like, but we took the hard road to get here.
As someone who’s moved in retirement, just let me warn you to be very, very, very, very careful about moving from a place you like a lot/love. Be sure to:
- Give it tons of thought and consideration
- Do as much as you can to try out the new place for as long as you can
- If possible, try the new location out at the worst time of year to live there before you make a move
Mark suggests some ways to do your due diligence on a potential moving place as follows:
You need to find trustworthy resources to help you sort through and evaluate locations and get beyond the clickbait about tax-friendly locations. While taxes are a consideration, of course, making that a primary factor is a “tail wagging the dog” approach.
Moving to a sunny location with lower taxes can be a great thing, but you have to weigh that against other factors. AARP has a website called the Livability Index that grades every neighborhood and city in the U.S. on a zero to 100 scale as a place to live when you’re getting older. You can plug in specific addresses to see how a location scores for attributes like housing, neighborhood transportation, health, civic engagement, etc.
Another site that I like a lot that doesn’t get nearly enough attention is called Sperling’s Best Places. It’s a data aggregation site that will suggest locations to you that match your interests and preferences based on answers you give to questions on housing, affordability, culture, cost of living, and so on.
Finally, there’s a book I like a lot, called Aging in The Right Place, which is written by a gerontologist named Stephen Golant. It examines the relationship between location and successful aging.
Those are good starts to selecting a potential place to move to (I’d add YouTube), but I’d suggest (once you have a solid candidate) going there and living for as long as possible. Kick the tires in every conceivable way. Think of every reason why moving is a BAD idea.
If you do all those and are still up for moving, you might have found a place worth living in.
If you can, I’d suggest keeping your former house for at least a year in case you want to move back. This is, of course, if you liked where you lived. If you hated it, then burn the ships and take the leap of faith. If you hated where you lived before, how much worse could the new place be? Hahaha.
To end the chapter, Christine makes this observation:
Relationships are central to most people’s happiness, and it gets harder for most of us to make friends as we age. If you’re considering a move to a completely different location, be sure to consider how and where you would meet new people.
We have previously talked about how having strong social relationships is vital to having a great retirement, so this is certainly worth considering.
This is one of the strengths of The Villages, Florida — especially if you’re a buyer of a new home in a new village. This is because everyone is looking for new friends since they all have recently left their friends “back home.” You’re living near these people, participating in many recreational activities with them, going to parties with them, seeing them at stores, theaters, restaurants, etc. — so it’s very easy to form new friendships. It’s one of the things my wife liked best about The Villages.
What You Can Control
Chapter 13 is an interview with Maria Bruno who works at Vanguard. She discusses the need to “focus on what you can control.”
What does that mean exactly? Well, let’s see — starting with this:
There are two categories in particular that you should try to tune out as you’re heading into retirement.
The first would be the markets and the noise that goes along with them, especially the barrage of headlines around the latest “hot” stock of dally market ups and downs. You can’t control what’s going to happen with the markets. If you’ve come up with a financial plan for your retirement, that plan should be able to withstand periodic downturns. But there is so much noise out there — quick news and sound bites-and that makes it difficult to focus on what matters.
That’s an added stressor for people saving for and getting ready to retire.
The other key thing that you can’t control is your own life expectancy. You don’t know how long you’re going to live. You can make educated guesses about it: You might look at family history and your own personal health to help gauge, and those things provide a good directional sense. But by and large you can’t control how long you’ll live, and life expectancy really goes both ways. The primary concern for a lot of retirees is longevity risk, that they’re going to outlive their assets. No one wants to run out of money during retirement or be a burden for their loved ones when it comes to long-term care. But there’s also the flipside of that: If you pass away prematurely, there’s a risk that you’ll have underspent and didn’t fully enjoy the fruits of your labors during your lifetime because you were so worried about running out of money. You need to plan for both scenarios and that’s difficult.
Haha. Let’s talk about each of these a bit…
- You wouldn’t believe the number of high net worth people that get freaked out quite often when “something happens.” I have that in quotes because sometimes “something happening” is nothing happening…it’s just the possibility that something could happen.
- Generally this is driven by the news cycle — either political or economic. They hear something and start to imagine what could happen…then they drive themselves crazy with “what about this” and “what about that” scenarios, most of which never even come close to becoming reality.
- My solution here is to turn off the news! Don’t watch it, don’t read it, don’t discuss it, and so on. For some people the news is a toxic activity and they just need to avoid it…like someone on a diet avoids sugar. Just say no.
- I see less of the “hot stock” issues as by the time someone has a decent amount of wealth they have generally learned that almost no one can pick stocks and beat the market. So they index and chill and are good to go!
- The life expectancy thing is tied up with the concept of maximizing everything. People want to maximize every penny — from Social Security to Medicare to various forms of insurance. And you simply can’t do these things unless you know the future…which, of course, no one does.
- In this case, there’s only one remedy: let it go! Stop trying to make the maximized/optimal solution and simply make a good decision (which is much easier to do). I know for some this is much easier said than done, but you are either going to get to this point or you’ll drive yourself crazy. You decide which you prefer. lol
You also need to realize that one outcome is way worse than the other. Consider these two from above:
- Running out of money in retirement
- Underspending and not fully enjoy the fruits of your labors during your lifetime because you were so worried about running out of money
Both are sub-optimal and you will likely have one of these because no one knows the future (you could guess, get lucky, and avoid both but that’s not likely). So which one is better and which is worse?
To me it’s clear that running out of money is many times worse than not spending every penny for enjoyment (you will still have some joy, even maybe a lot of it, if you underspend/oversave — I’m living proof of that). So while you’re not maximizing, also be conservative and err on the side of safety. You don’t want to spend your final years eating Alpo to survive.
What to Focus On
Christine next moves the conversation ahead by asking this:
Let’s talk about the factors that retirees should focus their energies on because they can exert some level of control over them.
To which Maria responds:
At the top of the list is having goals and having a vision for what you want your retirement to look like, starting with lifestyle. Stop and think about what you want to do in retirement. After all, it’s your retirement and not someone else’s.
Do you want to travel more because you will now have the time? Do you want to spend time with your grandkids? Do you want to work part-time or volunteer? It’s important to start thinking about those in-retirement priorities before you make the transition. Talk to people who are already retired to hear what they did. People love talking about their retirements, how they made that choice, and what they do with their time now. Write down your goals and then go back to them periodically.
If you’re married or have a partner, make sure you collaborate with your partner. You might have a vision about what retirement will look like, but your partner might think about it quite differently. It’s important to see both sides and do some planning around that.
One time when I was doing a live webcast a woman asked, “What do you do if you’ve retired and your husband wants to sell the house and rent an RV, but you want to stay home and be close to the kids?” I chuckled at that question, because after retirement is not the time to figure that out! You’d want to have that discussion long before you retire, because, in this example, you couldn’t get two more opposite visions of retirement in one household. They were obviously going to have to compromise, but it’s best to have those discussions and negotiations well in advance.
Lots to comment on here:
- We’ve said it a million times here — you need a plan for the time part of retirement going into retirement. It’s just as important as preparing your finances.
- Don’t think you can just wing it and things will turn out ok. Most of those who do that end up back at work or depressed because retirement is “boring.” You know what’s boring, you are! If you can’t fill your time with things that bring joy, excitement, fun, challenge, fulfillment, etc., then you suffer from an extreme lack of imagination. Hahaha.
- Notice how she mentioned work/volunteering in retirement? We’re certainly on the same page with that! (And take that, Retirement Police!) Hahahaha.
- Yes, if you have a significant other, you’re going to need some agreement and coordination. As she notes, this needs to be discussed well in advance of retirement. Otherwise you may be in for a big (and likely unpleasant) surprise when you get to retirement.
The P Word
Next we get to the seemingly never-ending conversation about purpose in retirement with this:
You need a purpose, a reason to get up in the morning. Your purpose could be small things-pursuing hobbies, spending time with family, doing things outside in nature, volunteering, even working — and probably a combination of several of those things.
As you get closer to retirement, you start thinking about hobbies that you might want to try, and it’s helpful to talk to other people about them. Having a number of activities that bring you joy and purpose could make a big difference in your overall mental well-being as well as your physical health. You might make new friends along the way and meet other people who are like-minded. A walk of two people might become a walk of four or five.
I have covered a lot of this in past posts.
For those of you wondering what I’ve said or you’d like some ideas on how to address these issues, read my series titled The Top Seven Retirement Activities.
If you read that series and follow my suggestions, you will be more than fine (you’ll actually thrive).
Also check out Finding Your Purpose in Life.
Now let’s bring this chapter to a conclusion with this dandy:
A good friend and mentor shared a saying with me about how to know whether it’s time to retire, and I repeat it all the time. I call it “the three haves”: Have you had enough? Do you have enough? And will you have enough?
“Have you had enough?” means do you mentally feel that you’ve had enough of the work? “Do you have enough?” That’s the money part: Can you make it work financially? And then “Will you have enough?” That relates to how you’re going to spend your time: What are you going to do in retirement? Answering those three questions is a great way to help decide whether it’s time to retire.
My answers to the above:
- I had enough of work shortly after beginning my career. Hahahaha. Ok, so it wasn’t that bad, but I never viewed my career as who I was as a person. It was something I did to achieve a goal (time freedom).
- When I ended up in the terrible position of having a bad boss and the wonderful position of moving to Colorado, I ran the numbers and saw that I had enough to retire. So why not do it? (I asked myself.) There were no good reasons to delay, so I retired.
- I never had a plan for the time part of retirement (which I do not recommend) but I did know that I had many interests as well as things I wanted to explore, so I figured I would be fine. I was correct in that assessment, but I took a risk by not having a plan for what to do. I have learned in the meantime how important a plan in advance is for what to do with your time…which is why I recommend it to people now.
Ok, that’s the end of this post. We’ve made a great amount of progress on this book and have just a few more chapters to go.
Stay tuned!
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As I said above, I’m giving away a copy of How to Retire on every post I do about the book. Here’s how to you can enter:
- Leave a comment below telling me what you liked best about this post, what you think you can use, or something you learned from it. Basically just share anything meaningful related to the content above (note: “please enter me to win” and similar comments will not be considered out of pure weakness! At least put a bit of effort into it!) This should be fun!
- Be sure to leave your email address when you leave the comment so I will know how to reach you if you win (the email address will not be visible to anyone other than me).
- The winners will be selected by me at random a few days after this post goes live. I’ll announce who wins in my own comment.
- I’ll email the winner, get their address, and send them a book from Amazon.
As with most giveaways, there are rules. Here they are.
Good luck!!!!
