In the complex world of personal finance, it’s not uncommon to feel a mix of confidence and anxiety regarding retirement. One individual, who has amassed an impressive $2.5 million in assets, expresses an overwhelming fear about whether they’ll ever truly be ready to retire. At 57 years old, with plans to retire within three years, this individual worries not only about market uncertainties but also about the absence of a steady income source, having been in the workforce since age 14. Their spouse, aged 60, may consider part-time work, but this individual is more inclined to enjoy a retirement free from work obligations.
The annual budget is projected around $70,000, accounting for living expenses, trips, and essential healthcare. Fortunately, their financial landscape is relatively secure with no debts, except for a manageable $20,000 retirement account loan that will be settled soon. They own two vehicles under five years old and property valued at approximately $650,000, combining their house and a cabin. The couple anticipates a combined Social Security income of $5,700 per month when they reach 67, increasing to $7,400 at age 70.
This situation isn’t unique—many individuals grappling with similar retirement anxieties often find solace in employing the bucket strategy, a concept that could be a game-changer in alleviating financial fears. This method allows savers to categorize their holdings into distinct “buckets” based on the type of accounts and the timeframes for accessing the funds.
The first bucket includes tax-deferred accounts like 457(b) and 403(b) plans, accumulating a total nearing $943,000. Although funds in these accounts cannot be accessed without penalties until the age of 59½, strategic withdrawals can be planned, especially since distributions are required by age 73. Assuming continued investment growth, this bucket could potentially exceed $2.5 million by the time they turn 73.
Next, the tax-free bucket comprises Roth IRAs worth around $260,000. The unique advantage of these accounts lies in their tax-free growth and tax-free withdrawals of contributions at any time. As they move towards retirement, this bucket could grow substantially, making it a valuable resource for their later years. Spending this last can also be advantageous, as it preserves the account for tax-free legacy planning if there are beneficiaries.
The final bucket is the taxable holdings, including brokerage accounts and cash, ensuring easy access without tax penalties. By carefully managing these investments, this couple can align their expenses with their income streams while actively considering their healthcare costs and leisure activities. Running retirement projections using robust financial planning tools can paint a clearer picture of their future financial landscape.
While $70,000 might appear reasonable today, it’s crucial to acknowledge potential lifestyle changes that may demand higher spending in their golden years. Retirement should provide both joy and freedom, meaning that passion-driven endeavors may still surface in their lives.
In summary, reworking existing assets into a structured approach can simplify the financial management process, helping to ease worries about retirement readiness. As they shift towards retirement, embracing a strategy rich in diversity and clarity can empower this couple to make informed decisions, allowing them to enjoy their future without restraint. Through strategic planning and the right tools, they can dissolve the uncertainties that cloud their path to a fulfilling retirement ahead.