I’m rewatching this again from your original posting five years ago. The two bucket approach is what I’ve been running with three years now into retirement. So far so good! Thanks!
You might be the best retirement finance guy on TH-cam. Thank you so much for explaining that so clearly. Your illustration really eased my anxiety. Very solid info.
I like the idea of a simple 2 bucket retirement plan. Thanks for explaining in detail. I will go with this, but make it slightly more complicated with a third bucket for those occasional big expenses like when the air conditioning breaks, new roof, or need a new car.
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I did it a little different. Retirement is not all gloom and doom. I collect $2,100 after taxes in military retirement then $1,700 in social security for $3,800 per month with $65,000 in savings. I know $45,600 isn't a great income. However I'm debt free, my monthly expenses are around $900 per month which leaves me $2,900 per month expendable income. Both my mil. pension and SS have COLA raises assesed by the same process so double the raises. I sleep very well at night. BEING DEBT FREE IS THE KEY!
David Wolter 3800 is better than most but retiring from the military really hinders having any other retirement plan. I’d rather do a 401k and a supplemental IRA. Unless you retire an officer, it doesn’t seem worth it.
@@engalvanMost retired VETS I know do their 20 years, and get out and enter corporate America and get into a 401K for another 15 years or so..... they do very well.
I’m a retired Marine who has been working in the private sector for 15 years. I really appreciate everything you’ve taught me! as we say in the Corps, Semper Fi!👍🏽🇺🇸
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I’m going back through a lot of your older videos, and realized on each one things I missed or forgot. I love your channel. I’d much rather watch you and let you make money from my viewing, than a network TV channel. I’m still considering getting you to help me, this 50 year old, land my retirement plane. Now, back to your videos.
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Instead of an annuity how about putting 100k into a Preferred stock etf or fund that pays close to 6 percent? This way the principal remains yours plus or minus market gyrations.
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Retiring debt free is the focus of effort with 8 years to go (at 61 yrs old.) We only have the mortgage left, and a plan to knock it out 2 years before retirement. And yeah, 20 years USMC retirement is great! No regrets. Now add 20 years FERS with the ATC special rate... Not trying to rush the clock, but I'm looking forward to retirement.
Very good! This is what we have been doing but with a stable fund within one of two 401K. We use a Value Stable Fund instead of CDs and do everything within the 401K. When we take money out, they withhold 20% of the amount which covers our taxes and preserve capital. Happy to report that our balance is greater than 3 years ago using this approach. Good job explaining this. Didn't realize we were doing the exact same thing.
My partner and I really love your videos. You are just a straight up honest guy w no BS. He's 54 and I'm 38, he worries a lot that we won't have enough money bc I'm that much younger - even though we have $900K combined in our portfolio. Watching your videos just give us so much comfort that we'll be alright when we leave the workforce in 834 days (lol). Thanks again! We definitely are subscribers!!
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This is fantastic! Very clear and concise. Love that you went through multiple scenarios for up Market and down cycles. Summary at the end to drive key takeaways is a great touch! I’ve been looking for ways to explain traditional retirement planning to my parents which is different than the early retirement planning I’m doing (I may not be able to count on social security in another 20-30yrs, who knows!). So thank you for this great video and keep the financial literacy education videos coming! You’re literally helping save thousands if not millions of dollars!!
Wow!! By far the best retirement videos I've seen on TH-cam. I'm at a major fork in the road right now having just accepted an "early retirement" package from work. I'm not financially ready to retire just yet but I'm trying to get there and so I'm going to deposit my "early retirement" into retirement savings and get another job so I'll essentially be double dipping. I live below my means so I can save more and have lower living expenses in retirement but I may just sell it all and move to Portugal where you can actually live comfortably on a Social Security check and use your retirement savings to travel. You make strategy for retirement so much more understandable and relatable. Thank you!
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Still one of my favorite videos of yours Josh. I go back every so often and watch it again. I'm pulling the plug in 2-3yrs. I'll be 60 and we should have $100k cash plus $80k after tax on a lump sum pension. I won't be on ss yet but plan on using cash plus 401k withdrawals from $550-600k. I can't wait!
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Great plan for those of typical retirement age! Could you do a similar video for people who plan to retire earlier, a few years before being eligible to withdraw from 401k, IRAs and too young for social security?
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funny thing is how many people gripe AFTER the fact. We know the rules! They aren't hidden. But so many simply don't want to pay attention and then later get hammered when they're least expecting it.
Great examples… and really helps me in my situation. I’m 60, expecting to retire at 67. My SS will be around $3k per month (similar to your example). I have ~$175 now in 401k, Roth IRA, and brokerage accounts… but I’m saving like a madman now (over $30k per year for next 7 years). Hoping to have around $500k at retirement, which should give me around $20k per year from retirement funds, while continuing to grow. I’ll adopt the two bucket system with maybe $80k (4yrs) in cash and remaining $420k+ in mostly stock portfolio. Sleeping a little easier now! Thanks!
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Hey Josh I’ve learned a lot from you, more so than any other financial gurus out there. You make complicated stuff easy to comprehend and apply it in real situations. You are the best and may God bless you more💙
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I think you need a 3 bucket approach. 2 years cash, 3-7 years bonds, rest in full market. This is applied to the desired 20K expenses above social security. I like 1 year cash and 6 years of laddered CDs/bonds but mixes including Bond funds and preferred Stock funds might be OK too.
Are you at all familiar with Federal Employee Retirement System and our Thrift Savings Plan? I would love to implement the two bucket system if possible but may be limited in the TSP.
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If you decide to annualize some of your portfolio make sure the insurance company is solid. And also better if interest rates are up , you will get more money. The biggest constrain on my distributions out of my IRA is taxes. Right now I am each year converting part of my regular IRA into a Roth IRA. Being careful about the taxes. I am convince the current tax rates are unsustainable and eventually will have to go higher. Many people retire successfully just on Social Security. The key is low expenses. One other thing I would suggest is to be a giver. I am convinced that a great spiritual law is those who give are given more to managed.
How about laddering bonds instead of CD's? 3, 5, 10 year treasuries, or high quality corporates? Yes, early on people can work part time in retirement, then cut back in your later years. Then perhaps some plan for having to manage RMD's even in a down market.
You could do bonds, but the higher return is with a risk. There is no default risk with US treasuries, but the value of the bond could drop before maturity. That would not be an issue if you hold the bond to maturity. Josh recommending just 3 years of needs in bucket #1. Longer term investments (4+ years) would be in bucket #2. You can take more risk with bucket #2 with bucket #1 covering your short term needs.
Thanks for the info. I’d always heard about the 60/40 split between stocks and bonds. But didn’t realize other income streams could be counted toward “bonds”. Great info.
Thanks Terry. Any kind of regular income, be it work, or annuities/social security/pension should be considered synonymous with bonds, in my opinion. And once people have that calculated they will see how conservative they actually are.
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Josh, this is why I advocate dividends and stocks that not only pay dividends but have increased their dividends 25, 30, 40 Years, year after year. Your principle can go up and down with the market but you can always take the dividend.
This guy knows his stuff..very sound advice. The only thing that derails this is sequence of returns risk. Essentially, 4-5 down years to start your retirement...then it's tough to recover. That's why for more frugal ppl or folks that don't want to have to greet people at walmart, I'd still have 25-30% of that big bucket in corporate or high yield bonds...will buffer you when stocks go south. People don't realize a long term bond FUND has done better than the S&P 500 for the past 50 years, and hedges your risk. In general, the 7% he uses is conservative, stocks will do 9+% historically...everyone should have that 3 year cash bucket unless you are bulletproof rich. Great video.
But will those bond funds do that going forward? Doubtful in today's low interest environment. The other solution is just have more years in cash...5-7 years instead of 3 that Josh advocates here.
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If you use this strategy when your bridging from retiring at 62 to collecting social security at 70, would you have some bonds in your non cash bucket at least till you start collecting?
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Josh, Sounds like a great idea. Heres my scenario. I just retired from the govt. and have the TSP retirement. Do I use the G fund for the cash bucket, and C Fund for the stocks? Or a mixture of C,S, and I Funds? The good about this cash bucket, is that the G fund gets 2- 3% per year interest , and is guaranteed . When should I make the mix? Stocks are doing good as I speak in the C Fund, so I m not sure if I buy in now or wait to buy when they are down. Thanks for all you do here! Subscribed!
Do you have a video showing the mechanics of setting this up? It makes the most sense to me. I’ve looked at my 401k. I’m not sure I can set the CD account up until I retire. It would be great if I could start now when I 5 years away from retirement.
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May be too simple.....what if there is another 2008 stocks took 4 years to recover to previous levels and bucket II in this case was nearly cut in half to around 150k and that took 4 years to get back to 300K There needs to be more of a buffer to allow stocks to grow back again to previous levels
The odds of *you* seeing another Great Recession like in 2008 is pretty small. However if the fear is that great you can spread it for 4 or 5 years just to be safe.
O.K., I'm an idiot! But, why withdraw the 60K from the IRA in the first place.? Why not leave it in the funds? I withdraw what I need every month and let the rest earn. What am I doing wrong?
I believe the goal is to not touch the money that's in the market. You certainly dont want to pull from it every month. This plan would be even better if you actually had the 60k already saved in the bank. Because the 7% rate of return on 360k is much greater than on 300k
12% tax bracket = $52,850 + $12,400 standard tax deduction for a single man in 2020 = $65,250. So if I earn $12K pension, $22K SSI & an IRA draw down of $ 33,250 to fill the bracket. How does capital gains even come into play? You're being taxed in the 12% bracket.
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I really love this idea and think I will use it for my retirement plan. I am 55 and will be retiring at 62. I will need 12k per year from my 403b through Fidelity. I am thinking that I will implement one difference from your plan. At ages 57, 58, 59, 60 and 61 I will purchase a 5 year CD for 12k. That way I will secure money from market fluctuation prior to retirement and get a higher interest rate for the 5 year period. Do you have any thoughts as to whether or not this would be a good idea? Thanks.
makes sense to me, Joan. Remember, the premise is simplicity. So, whatever is EASY to manage on top of keeping you from drawing down your investments during market declines.
Heritage Wealth Planning Thanks for your response. You really have one of the best investment channels on TH-cam. I’m not sweating retirement anymore!!!!!!
Great idea to start filling buckets 5 years prior to retirement but you will get a better rate on your cd and also leave more in bucket 2 (for long term growth)if you present value the 60k example is if a 5 year CD is paying 2.75% then you will do one five year CD with$ 52400 in five years this will compound to 60k
Sergio Santana Thank you Sergio. Indeed. After I made this comment I crunched my numbers and came to the same to conclusion. Thank you for taking the time to respond.
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So, if I have Traditional TSP balance of 800K, split 650K into C fund and 150K in the G fund, then use G fund money to fill the gap remaining in the lowest tax bracket. At end of year, take profit (if any ) from C fund, and replenish G fund. Do this for 3-4 years - and eventually spend all Traditional TSP money before drawing SS
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Heritage Wealth Planning thanks. Btw, like your KISS videos and white board info. My 26 yrs of military PowerPoint slides was flashy eye candy but often lost the purpose of the presentation
I just found your channel josh and I’ve been Binge watching ever since. I have a question though on the 2- bucket Retirment what investment should I be in at 62 and I’m 56 now ? Ive followed Dave Ramsey baby steps for years now.
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need more cash reserves in bucket #1, too much uncertainty with market rebound timing. a 5 year bucket #1 would be better. more sleep at night knowing you have 5 years for the market to rebound before touching. Plus you have no emergency bucket for auto and home repairs.
Good plan. I will have $1840p mo pension can wait for Soc Security. But I don't have anything in Cash Bucket? Was going to draw it from $400k 403b? Guess I waited too long? Am 60, Will prob retire next year? So just withdraw what I need in 1st year waiting for markets to come back to Fill my Bucket? Or bite bullet and take withdrawal in dow. Market to Fill Cash Bucket ?
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If bucket #2 was a TIRA, would you agree with doing a "roth conversion" in the year that you use your cash ? My thinking is this will lower RMD. I think you could access the principal of the roth ( because taxes are paid on the conversion amount) at any time and let the gains grow tax free and RMD free ? If the amount was the same as the cash transfers in this video they would be tax free ?
There has yet to be anything definitive on if you convert to a Roth will that prinicpal be available immediately or do you have to wait the 5 years. seems the IRS has been implying the 5 year rule applies to conversions too. So, just keep that in mind. There may have been a private letter Ruling(PLR) in the last two years which answers this. But i hadn't heard of it.
Simple. I get my S.S. check and I rent out my house (free and clear). Each pays me est. $1800 x 2 = $3600. Cost of Living overseas is half of what it is here. Can enjoy a nicer life cheaper in Greece, Morocco, Mexico, Taiwan, Malaysia, even parts of France and Portugal. And I never sell the house or touch my portfolio
Hey old JOSH! This is a great video ! So if I am going to be single doing this, is my standard deduction going to allow me to do this without taxing my taking of gains? Or distribution? Just so into ur amazing expertise and trying to hang on to ur every word! Thx u Josh so much! Good old Meg from Massachusetts!
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Yes, I have a nice balance in my 403b. That along with SSA will be much more than I am spending currently. If I live off CDs and Roth IRA from 61 to 67 and keep my income low I could qualify for ACA from 61 until age 65 when Medicare kicks in. Unless the ACA rules change of course.
make sure your docs accept the ACA stuff. I'm telling you, folks on here say they've had no problem with it. Not my family. None of our docs accepted the ACA insurance.
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@9:30, where Josh discusses the amount of taxable income being under their combined personal exemption, I believe the following: if feasible, you should maximize any withdrawal of taxable funds to be at least equal to your personal tax exemption… I mean, even if its only a couple thousand dollars, if you can avoid taxation on that money - then why not? I just (Oct. 2024) ran the numbers on a married couple, filing jointly, simple 1040 return, $30 SS income… they can take as much as a $25K distribution with zero taxes due. So, why not take the extra $5K (tax free) and put it in the kitty? RMD’s or something else may come along later - but for me, it just makes sense to maximize ANY tax savings. Heck, I’d probably blow $500 of it and call it my reward for saving a minimum of $500 in taxes🤣
My retirement plan is with TIAA-Cref and we also have a choice to go with Vanguard. I suppose Vanguard has a Roth I’ll look into it. I also think TIAA might have a Roth.
No bonds? Build the original 360k with a 60/40 split, but then after moving 60k to a liquid position, then change the investment for the remaining 300k to stock only?
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Didn't realized SS was our bond. We are using this approach to defer taking SS. Our allocation was 50/50 and we moved to a 65/35 by not rebalancing the other accounts. If we use SS as the bond, we can go even higher not lower in our market allocation. Interesting and amazing. Concerned about RMD so we are trying to convert into a Roth in step way but haven't found a comfortable investment to do the transfer. Do not like Vanguard!
Got a question. Let’s say our projected retirement savings in 15 years is $1 million on a 403B. Can you provide some scenarios how the $1 million will be taxes or how we should take income on it? And since we have 15 years to go any suggestions on how to maximize paying taxes etc now before it’s too late? We contribute 15% of our salary currently with employer match.
Great excellent video. However, I'm retired 54 wifey 54 still working we are in 25% or more this year collecting a pension. Would love to convert to Roth. but I got to wait for the wifey to retire our income too high. RMD will kill us if we wait until 70 !
You should run a Monte Carlo or equivalent of your retirement plan and consider its probability of success. It's OK to tighten your belt a little but only when you have a delta between your gross expense and you basic needs expense. If you've filled the gap with mortgages, car payments, utility bills and food, tightening the belt is a tough road. Can I say it,.. "Welcome to Walmart". An I think we want to protect us from needing to go back to work if it is at all possible.
It would be helpful if you discussed the requirements of IRS Pub 590-B (IRAs), Table I, Single Life Expectancies. This table provides filers with a minimum % of their IRA that must be withdrawn each year. The table appears to impacts IRA 4%withdrawal plans that you refer to ... after the age of 61. That is, it appears that if you limit withdrawals to 4% each year, the IRS will impose a tax penalty of 50%(?) of the under withdrawn amount. Hmm.
If you work until 68 and use the next 20 years to save like a madman, you can retire with a nice amount of money. Pay off all debt and downsize as much as you can. Get rid of any car payments asap!
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SS will not just disappear and will be there in some manner. The SS trust fund is projected to be exhausted in 2035. Afterwards SS tax collections will cover 75% of SS payments for several decades. The question is whether Congress will let the cut happen or make up the difference from the general fund or more borrowing.
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So, just a quick question. Let's say I was retired and only had an income of 30K. But, I had a stock I sold that had a long term capital gain of say One million dollars. I would NOT owe taxes on that one million gain??
@@sergiosantana4658 Could you give me an example? That comment is a little confusing to me. What do I need to do to pay ZERO tax on capital gains? On ALL gains
@@219garry your taxable income cannot exceed the 12 tax bracket any long term gains that fall in this bracket will be tax free. If you are single and you are using your 12k standard deduction you can sell up to 21k of gains and it will be tax free and if you are married selling up to 72k of gains will be tax free you will have to do this over a number of years to remain in the 12% tax bracket
Good point the 300 k would diminish to 150k and you would still take out 20k for the next 4 years until the losses were gained again...it took that long to recover
CD's don't keep up with inflation because they are Certificates of Depreciation and less liquid. Keeping 3 years of money in a high yield savings account is perfect once you are within 5 years of retirement or already retired. In case the market drops at retirement that Cash bucket can be used to live on while you are waiting for the market to rebound.
I am confused. If I draw the initial $60K out of my 401K won’t I pay big taxes on it, especially in our final higher income year prior to our retirement year? I’m talking This January.
Your can have 3 staggered CD's in an IRA account. You just need a bank or investment firm that offers CD's investments for IRA's. Each year's withdrawal will be tax free with the figures Josh is using.
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Great video! I had a couple questions. Could you calculate quarterly instead of yearly? Also what if the year was flat-what bucket would you take 20k out of? thx
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I'm 61 and plan on retiring in 4 years. With the stock market doing so well for the past 10 years and the odds of a bear market returning, when should this CD ladder be set up? I'm thinking for myself right now just so if we have a downturn the cash is in CDs.
already had a bear market, just a few months ago. bear markets happen ALL the time, eveyr 4 yrs or so. As for the right time for doing a cd ladder, I simply don't know.
Bonds won't be a viable investment for awhile. You may have 2-3% coming in from dividends, but as interest rates rise you be losing 2-3% in value leaving you with 0% return and taxes due on the dividends. Retirees are screwed. Maybe a better conservative alternative to bonds would be consumer staples, utilities, healthcare stocks that pay dividends and have some hope of price appreciation.
Nice! No cheesy music to distract from clear, relevant content. Perhaps lacking in organization (all the erasing and calculating) but I got through at 1.25 speed while playing solitaire. Twice.
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I believe it's 72k after your 24k standard deduction so you could earn a gross of 96k and be in the 12% bracket. I just had my taxes done recently and if I remember correctly those were the numbers, I just made it in the 12%!
I’m rewatching this again from your original posting five years ago. The two bucket approach is what I’ve been running with three years now into retirement. So far so good! Thanks!
You might be the best retirement finance guy on TH-cam. Thank you so much for explaining that so clearly. Your illustration really eased my anxiety. Very solid info.
Awwww... awful kind of you to say that Bridgett
*IS* the best retirement guy on TH-cam.
I like the idea of a simple 2 bucket retirement plan. Thanks for explaining in detail. I will go with this, but make it slightly more complicated with a third bucket for those occasional big expenses like when the air conditioning breaks, new roof, or need a new car.
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I did it a little different. Retirement is not all gloom and doom. I collect $2,100 after taxes in military retirement then $1,700 in social security for $3,800 per month with $65,000 in savings. I know $45,600 isn't a great income. However I'm debt free, my monthly expenses are around $900 per month which leaves me $2,900 per month expendable income. Both my mil. pension and SS have COLA raises assesed by the same process so double the raises. I sleep very well at night. BEING DEBT FREE IS THE KEY!
Being debt free means $45k is a fine income stream, David. That, like you said, is teh key!
Indeed. Debt is very expensive.
David Wolter 3800 is better than most but retiring from the military really hinders having any other retirement plan. I’d rather do a 401k and a supplemental IRA. Unless you retire an officer, it doesn’t seem worth it.
@@engalvanMost retired VETS I know do their 20 years, and get out and enter corporate America and get into a 401K for another 15 years or so..... they do very well.
That is absolutely without a doubt the way to go. I, myself longer then 15 Years though.
Standing ovation. You made it look so easy. Thank you!!!
I’m a retired Marine who has been working in the private sector for 15 years. I really appreciate everything you’ve taught me! as we say in the Corps, Semper Fi!👍🏽🇺🇸
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I’m going back through a lot of your older videos, and realized on each one things I missed or forgot. I love your channel. I’d much rather watch you and let you make money from my viewing, than a network TV channel. I’m still considering getting you to help me, this 50 year old, land my retirement plane. Now, back to your videos.
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Instead of an annuity how about putting 100k into a Preferred stock etf or fund that pays close to 6 percent? This way the principal remains yours plus or minus market gyrations.
Stashing cash now. Thank you, Josh!!!! You have the heart of a teacher
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One of the underlying principles should be to minimize expenses prior to retirement.
yup. COuldn't have said it better myself. Good call, Steve!
For each $100 saved it is the same as $120 earned.
I won't be debt-free but my mortgage is only $475.00 per month and I have no other debt so hopefully, that puts me in a good place.
Retiring debt free is the focus of effort with 8 years to go (at 61 yrs old.) We only have the mortgage left, and a plan to knock it out 2 years before retirement. And yeah, 20 years USMC retirement is great! No regrets. Now add 20 years FERS with the ATC special rate... Not trying to rush the clock, but I'm looking forward to retirement.
So important! No car payment, no house payment, no credit cards. Frees up a lot of stress and outflow!
Very good! This is what we have been doing but with a stable fund within one of two 401K. We use a Value Stable Fund instead of CDs and do everything within the 401K. When we take money out, they withhold 20% of the amount which covers our taxes and preserve capital. Happy to report that our balance is greater than 3 years ago using this approach.
Good job explaining this. Didn't realize we were doing the exact same thing.
Josh - Re-Watching this video. Love the simplicity. Really easy to understand. Great job!
Thanks Al!
My partner and I really love your videos. You are just a straight up honest guy w no BS. He's 54 and I'm 38, he worries a lot that we won't have enough money bc I'm that much younger - even though we have $900K combined in our portfolio. Watching your videos just give us so much comfort that we'll be alright when we leave the workforce in 834 days (lol). Thanks again! We definitely are subscribers!!
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This is fantastic! Very clear and concise. Love that you went through multiple scenarios for up Market and down cycles. Summary at the end to drive key takeaways is a great touch! I’ve been looking for ways to explain traditional retirement planning to my parents which is different than the early retirement planning I’m doing (I may not be able to count on social security in another 20-30yrs, who knows!). So thank you for this great video and keep the financial literacy education videos coming! You’re literally helping save thousands if not millions of dollars!!
whoa! Now that's the best complement one could get! Thanks much!
never thought of this. Makes ton of sense.
Wow!! By far the best retirement videos I've seen on TH-cam. I'm at a major fork in the road right now having just accepted an "early retirement" package from work. I'm not financially ready to retire just yet but I'm trying to get there and so I'm going to deposit my "early retirement" into retirement savings and get another job so I'll essentially be double dipping. I live below my means so I can save more and have lower living expenses in retirement but I may just sell it all and move to Portugal where you can actually live comfortably on a Social Security check and use your retirement savings to travel. You make strategy for retirement so much more understandable and relatable. Thank you!
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Still one of my favorite videos of yours Josh. I go back every so often and watch it again. I'm pulling the plug in 2-3yrs. I'll be 60 and we should have $100k cash plus $80k after tax on a lump sum pension. I won't be on ss yet but plan on using cash plus 401k withdrawals from $550-600k. I can't wait!
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You crack me up! Love your passion. For you Spanish speakers...!no bonds! Hilarious.
I'm all inclusive Julie!
Love this plan. Thank you for going through this!
Great plan for those of typical retirement age! Could you do a similar video for people who plan to retire earlier, a few years before being eligible to withdraw from 401k, IRAs and too young for social security?
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Amazing when you are informed of all the laws and investment vehicles how you can survive financially. Thanks Josh.
funny thing is how many people gripe AFTER the fact. We know the rules! They aren't hidden. But so many simply don't want to pay attention and then later get hammered when they're least expecting it.
Thank you so much for just keeping it real and basic
Great examples… and really helps me in my situation. I’m 60, expecting to retire at 67. My SS will be around $3k per month (similar to your example). I have ~$175 now in 401k, Roth IRA, and brokerage accounts… but I’m saving like a madman now (over $30k per year for next 7 years). Hoping to have around $500k at retirement, which should give me around $20k per year from retirement funds, while continuing to grow. I’ll adopt the two bucket system with maybe $80k (4yrs) in cash and remaining $420k+ in mostly stock portfolio. Sleeping a little easier now! Thanks!
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This is a GREAT video and super easy to understand!!!
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Hey Josh I’ve learned a lot from you, more so than any other financial gurus out there. You make complicated stuff easy to comprehend and apply it in real situations. You are the best and may God bless you more💙
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This is mind blowing!!
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I think you need a 3 bucket approach. 2 years cash, 3-7 years bonds, rest in full market. This is applied to the desired 20K expenses above social security. I like 1 year cash and 6 years of laddered CDs/bonds but mixes including Bond funds and preferred Stock funds might be OK too.
Are you at all familiar with Federal Employee Retirement System and our Thrift Savings Plan? I would love to implement the two bucket system if possible but may be limited in the TSP.
Use the g fund for your cash. But the problem is the prorata distribution among Accts.
If memory serves tho they got rid of that with the new law
Great video - I'm going to save this for reference - hope you do the book on this!
This is incredibly informative. Thank you
Great video. I have a clear road map now to retirement, you are the best!
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If you decide to annualize some of your portfolio make sure the insurance company is solid. And also better if interest rates are up , you will get more money. The biggest constrain on my distributions out of my IRA is taxes. Right now I am each year converting part of my regular IRA into a Roth IRA. Being careful about the taxes. I am convince the current tax rates are unsustainable and eventually will have to go higher. Many people retire successfully just on Social Security. The key is low expenses. One other thing I would suggest is to be a giver. I am convinced that a great spiritual law is those who give are given more to managed.
How about laddering bonds instead of CD's? 3, 5, 10 year treasuries, or high quality corporates? Yes, early on people can work part time in retirement, then cut back in your later years. Then perhaps some plan for having to manage RMD's even in a down market.
Someone was saying you can get t-bills for around 2.25% on treasurydirect.gov.
I can see doing that. But corporate bonds? I wouldn't do that.
CD's are FDIC insured and can be lattered 3 6 9 and 12 months for more liquidity Returns are similar
You could do bonds, but the higher return is with a risk. There is no default risk with US treasuries, but the value of the bond could drop before maturity. That would not be an issue if you hold the bond to maturity.
Josh recommending just 3 years of needs in bucket #1. Longer term investments (4+ years) would be in bucket #2. You can take more risk with bucket #2 with bucket #1 covering your short term needs.
Two (or more) buckets...
before I hit the bucket. Got it!
Thanks for the info. I’d always heard about the 60/40 split between stocks and bonds. But didn’t realize other income streams could be counted toward “bonds”. Great info.
Thanks Terry. Any kind of regular income, be it work, or annuities/social security/pension should be considered synonymous with bonds, in my opinion.
And once people have that calculated they will see how conservative they actually are.
Finally got to watch this one, Josh! Thanks for making it so simple and in layperson's terms.
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Thanks Josh for your AMAZING videos! I have learned so much!!!
Thanks John, share the vids with your loved ones! Heck, even your enemies!
This 2 bucket approach makes a lot of sense if you don’t have a lot in your retirement account but just enough.
Also for people who just want a simple concept too. THat's what makes it so beautiful. SIMPLICITY...
The best straight forward explanation. Thank you so much. Very simple. Please can you give some example of good vanguard stock portfolio
Total stock index fund.
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Josh, this is why I advocate dividends and stocks that not only pay dividends but have increased their dividends 25, 30, 40 Years, year after year. Your principle can go up and down with the market but you can always take the dividend.
This guy knows his stuff..very sound advice. The only thing that derails this is sequence of returns risk. Essentially, 4-5 down years to start your retirement...then it's tough to recover. That's why for more frugal ppl or folks that don't want to have to greet people at walmart, I'd still have 25-30% of that big bucket in corporate or high yield bonds...will buffer you when stocks go south. People don't realize a long term bond FUND has done better than the S&P 500 for the past 50 years, and hedges your risk. In general, the 7% he uses is conservative, stocks will do 9+% historically...everyone should have that 3 year cash bucket unless you are bulletproof rich. Great video.
But will those bond funds do that going forward? Doubtful in today's low interest environment. The other solution is just have more years in cash...5-7 years instead of 3 that Josh advocates here.
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Wish I saw this 2 years ago. Whatever’s. This is how to do it. Thanks Josh
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This guy is a great, explains it in layman’s terms so the average Joe can understand! Thanks for great videos!
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If you use this strategy when your bridging from retiring at 62 to collecting social security at 70, would you have some bonds in your non cash bucket at least till you start collecting?
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This is brilliant.
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Josh, Sounds like a great idea. Heres my scenario. I just retired from the govt. and have the TSP retirement. Do I use the G fund for the cash bucket, and C Fund for the stocks? Or a mixture of C,S, and I Funds? The good about this cash bucket, is that the G fund gets 2- 3% per year interest , and is guaranteed . When should I make the mix? Stocks are doing good as I speak in the C Fund, so I m not sure if I buy in now or wait to buy when they are down. Thanks for all you do here! Subscribed!
Enjoyed the simple concept. Also the KISS comment. Must have been in the military.
Oh yeah, 11B. KISS is the best concept for an infantryman to be able to follow.! :)
Do you have a video showing the mechanics of setting this up? It makes the most sense to me. I’ve looked at my 401k. I’m not sure I can set the CD account up until I retire. It would be great if I could start now when I 5 years away from retirement.
I see. Excellent, thanks again.
very good illustration !
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May be too simple.....what if there is another 2008 stocks took 4 years to recover
to previous levels and bucket II in this case was nearly cut in half to around 150k
and that took 4 years to get back to 300K
There needs to be more of a buffer to allow stocks to grow back again to previous levels
The odds of *you* seeing another Great Recession like in 2008 is pretty small. However if the fear is that great you can spread it for 4 or 5 years just to be safe.
O.K., I'm an idiot! But, why withdraw the 60K from the IRA in the first place.? Why not leave it in the funds? I withdraw what I need every month and let the rest earn. What am I doing wrong?
I believe the goal is to not touch the money that's in the market. You certainly dont want to pull from it every month. This plan would be even better if you actually had the 60k already saved in the bank. Because the 7% rate of return on 360k is much greater than on 300k
12% tax bracket = $52,850 + $12,400 standard tax deduction for a single man in 2020 = $65,250. So if I earn $12K pension, $22K SSI & an IRA draw down of $ 33,250 to fill the bracket. How does capital gains even come into play? You're being taxed in the 12% bracket.
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I really love this idea and think I will use it for my retirement plan. I am 55 and will be retiring at 62. I will need 12k per year from my 403b through Fidelity. I am thinking that I will implement one difference from your plan. At ages 57, 58, 59, 60 and 61 I will purchase a 5 year CD for 12k. That way I will secure money from market fluctuation prior to retirement and get a higher interest rate for the 5 year period. Do you have any thoughts as to whether or not this would be a good idea? Thanks.
makes sense to me, Joan. Remember, the premise is simplicity. So, whatever is EASY to manage on top of keeping you from drawing down your investments during market declines.
Heritage Wealth Planning Thanks for your response. You really have one of the best investment channels on TH-cam. I’m not sweating retirement anymore!!!!!!
Great idea to start filling buckets 5 years prior to retirement but you will get a better rate on your cd and also leave more in bucket 2 (for long term growth)if you present value the 60k example is if a 5 year CD is paying 2.75% then you will do one five year CD with$ 52400 in five years this will compound to 60k
Sergio Santana Thank you Sergio. Indeed. After I made this comment I crunched my numbers and came to the same to conclusion. Thank you for taking the time to respond.
Thank you so much for sharing the wisdom
your easy to understand concepts, keep it up
Thank you you took a big worry out of my back now I know now lucky I am
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You are Awesome thanks! Great content keep um coming please.
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So, if I have Traditional TSP balance of 800K, split 650K into C fund and 150K in the G fund, then use G fund money to fill the gap remaining in the lowest tax bracket. At end of year, take profit (if any ) from C fund, and replenish G fund. Do this for 3-4 years - and eventually spend all Traditional TSP money before drawing SS
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Good info...question, you describe social security as a "oond", would you consider military retirement pay as the same with the added COLA benefit?
Yes
Heritage Wealth Planning thanks. Btw, like your KISS videos and white board info. My 26 yrs of military PowerPoint slides was flashy eye candy but often lost the purpose of the presentation
I just found your channel josh and I’ve been Binge watching ever since. I have a question though on the 2- bucket Retirment what investment should I be in at 62 and I’m 56 now ? Ive followed Dave Ramsey baby steps for years now.
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Love the concept
need more cash reserves in bucket #1, too much uncertainty with market rebound timing. a 5 year bucket #1 would be better. more sleep at night knowing you have 5 years for the market to rebound before touching. Plus you have no emergency bucket for auto and home repairs.
Good plan. I will have $1840p mo pension can wait for Soc Security. But I don't have anything in Cash Bucket? Was going to draw it from $400k 403b? Guess I waited too long? Am 60, Will prob retire next year? So just withdraw what I need in 1st year waiting for markets to come back to Fill my Bucket? Or bite bullet and take withdrawal in dow. Market to Fill Cash Bucket ?
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If bucket #2 was a TIRA, would you agree with doing a "roth conversion" in the year that you use your cash ? My thinking is this will lower RMD. I think you could access the principal of the roth ( because taxes are paid on the conversion amount) at any time and let the gains grow tax free and RMD free ? If the amount was the same as the cash transfers in this video they would be tax free ?
There has yet to be anything definitive on if you convert to a Roth will that prinicpal be available immediately or do you have to wait the 5 years.
seems the IRS has been implying the 5 year rule applies to conversions too. So, just keep that in mind.
There may have been a private letter Ruling(PLR) in the last two years which answers this. But i hadn't heard of it.
Simple. I get my S.S. check and I rent out my house (free and clear). Each pays me est. $1800 x 2 = $3600. Cost of Living overseas is half of what it is here. Can enjoy a nicer life cheaper in Greece, Morocco, Mexico, Taiwan, Malaysia, even parts of France and Portugal. And I never sell the house or touch my portfolio
Why don't you just transfer one years worth at a time, there by leaving the maximum to invest?
Hey old JOSH!
This is a great video ! So if I am going to be single doing this, is my standard deduction going to allow me to do this without taxing my taking of gains? Or distribution? Just so into ur amazing expertise and trying to hang on to ur every word! Thx u Josh so much!
Good old Meg from Massachusetts!
Depends on how much in gains you have Meg and how much you will withdraw
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What happens if your stock allocation grows more than you need for the three years? Is it safe to leave it there or should you drag it over into cash?
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That's a really clever plan .. !
Thank You ❤❤
I need help with my cD
Yes, I have a nice balance in my 403b. That along with SSA will be much more than I am spending currently. If I live off CDs and Roth IRA from 61 to 67 and keep my income low I could qualify for ACA from 61 until age 65 when Medicare kicks in. Unless the ACA rules change of course.
make sure your docs accept the ACA stuff.
I'm telling you, folks on here say they've had no problem with it. Not my family. None of our docs accepted the ACA insurance.
Wow! Great explanation, and very engaging :)
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@9:30, where Josh discusses the amount of taxable income being under their combined personal exemption, I believe the following: if feasible, you should maximize any withdrawal of taxable funds to be at least equal to your personal tax exemption… I mean, even if its only a couple thousand dollars, if you can avoid taxation on that money - then why not?
I just (Oct. 2024) ran the numbers on a married couple, filing jointly, simple 1040 return, $30 SS income… they can take as much as a $25K distribution with zero taxes due. So, why not take the extra $5K (tax free) and put it in the kitty? RMD’s or something else may come along later - but for me, it just makes sense to maximize ANY tax savings. Heck, I’d probably blow $500 of it and call it my reward for saving a minimum of $500 in taxes🤣
My retirement plan is with TIAA-Cref and we also have a choice to go with Vanguard. I suppose Vanguard has a Roth I’ll look into it. I also think TIAA might have a Roth.
I'd go with Vanguard over TIAA, other than the annuity option you have TIAA.
No bonds? Build the original 360k with a 60/40 split, but then after moving 60k to a liquid position, then change the investment for the remaining 300k to stock only?
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Great plan!
Excellent Job!
Didn't realized SS was our bond. We are using this approach to defer taking SS. Our allocation was 50/50 and we moved to a 65/35 by not rebalancing the other accounts. If we use SS as the bond, we can go even higher not lower in our market allocation. Interesting and amazing. Concerned about RMD so we are trying to convert into a Roth in step way but haven't found a comfortable investment to do the transfer. Do not like Vanguard!
Got a question. Let’s say our projected retirement savings in 15 years is $1 million on a 403B. Can you provide some scenarios how the $1 million will be taxes or how we should take income on it?
And since we have 15 years to go any suggestions on how to maximize paying taxes etc now before it’s too late? We contribute 15% of our salary currently with employer match.
Do they offer a Roth in your employer plan, Marc?
I have a gov pension coming my way as well, I assume you treat that as a bond as well?
Great excellent video. However, I'm retired 54 wifey 54 still working we are in 25% or more this year collecting a pension. Would love to convert to Roth. but I got to wait for the wifey to retire our income too high. RMD will kill us if we wait until 70 !
You should run a Monte Carlo or equivalent of your retirement plan and consider its probability of success. It's OK to tighten your belt a little but only when you have a delta between your gross expense and you basic needs expense. If you've filled the gap with mortgages, car payments, utility bills and food, tightening the belt is a tough road. Can I say it,.. "Welcome to Walmart". An I think we want to protect us from needing to go back to work if it is at all possible.
It would be helpful if you discussed the requirements of IRS Pub 590-B (IRAs), Table I, Single Life Expectancies. This table provides filers with a minimum % of their IRA that must be withdrawn each year. The table appears to impacts IRA 4%withdrawal plans that you refer to ... after the age of 61. That is, it appears that if you limit withdrawals to 4% each year, the IRS will impose a tax penalty of 50%(?) of the under withdrawn amount. Hmm.
I am 48 only have like 5000 in my 401 what would you suggest I do to make more money?
If you work until 68 and use the next 20 years to save like a madman, you can retire with a nice amount of money. Pay off all debt and downsize as much as you can. Get rid of any car payments asap!
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Already have good paying dividend stocks that pay and raise there dividends yr after yr..
Do you recommend ppl 45-50 still count on SSI being there? Any age that you no longer include it in your planning? Thanks for the vid.
SS will not just disappear and will be there in some manner. The SS trust fund is projected to be exhausted in 2035. Afterwards SS tax collections will cover 75% of SS payments for several decades. The question is whether Congress will let the cut happen or make up the difference from the general fund or more borrowing.
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Hey Josh, would this be similar to maxing out(to stay in the 12% bracket) 401K to Roth conversion and using part of the roth to cover the gap?
100% correct! Absolutely
So, just a quick question. Let's say I was retired and only had an income of 30K. But, I had a stock I sold that had a long term capital gain of say One million dollars. I would NOT owe taxes on that one million gain??
no. you'd owe taxes indeed
@@HeritageWealthPlanning I could swear in your video you stated with no income or a low income ALL capital gains were taxed at zero. Thanks
@@219garry no tax on long term gains as long as your gains fall in the 12% tax bracket
@@sergiosantana4658 Could you give me an example? That comment is a little confusing to me. What do I need to do to pay ZERO tax on capital gains? On ALL gains
@@219garry your taxable income cannot exceed the 12 tax bracket any long term gains that fall in this bracket will be tax free. If you are single and you are using your 12k standard deduction you can sell up to 21k of gains and it will be tax free and if you are married selling up to 72k of gains will be tax free you will have to do this over a number of years to remain in the 12% tax bracket
how would this of worked if you retired in 2008
That's the whole point. To avoid tapping into accounts when they're down. So, if you had 2-3 years living expenses in CDs you would have been fine.
Good point the 300 k would diminish to 150k and you would still take out 20k
for the next 4 years until the losses were gained again...it took that long to recover
CD's don't keep up with inflation because they are Certificates of Depreciation and less liquid. Keeping 3 years of money in a high yield savings account is perfect once you are within 5 years of retirement or already retired. In case the market drops at retirement that Cash bucket can be used to live on while you are waiting for the market to rebound.
I am confused. If I draw the initial $60K out of my 401K won’t I pay big taxes on it, especially in our final higher income year prior to our retirement year? I’m talking This January.
Your can have 3 staggered CD's in an IRA account. You just need a bank or investment firm that offers CD's investments for IRA's. Each year's withdrawal will be tax free with the figures Josh is using.
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Great video! I had a couple questions. Could you calculate quarterly instead of yearly? Also what if the year was flat-what bucket would you take 20k out of? thx
Awesome video!
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Do you have a video on Roth conversions?
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I'm 61 and plan on retiring in 4 years. With the stock market doing so well for the past 10 years and the odds of a bear market returning, when should this CD ladder be set up? I'm thinking for myself right now just so if we have a downturn the cash is in CDs.
already had a bear market, just a few months ago. bear markets happen ALL the time, eveyr 4 yrs or so.
As for the right time for doing a cd ladder, I simply don't know.
Bonds won't be a viable investment for awhile. You may have 2-3% coming in from dividends, but as interest rates rise you be losing 2-3% in value leaving you with 0% return and taxes due on the dividends. Retirees are screwed. Maybe a better conservative alternative to bonds would be consumer staples, utilities, healthcare stocks that pay dividends and have some hope of price appreciation.
Nice! No cheesy music to distract from clear, relevant content. Perhaps lacking in organization (all the erasing and calculating) but I got through at 1.25 speed while playing solitaire. Twice.
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I like the concept, but I would like to grow my wealth during retirement. Would I have a third bucket just for growth?
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What is the maximum amount to stay within the 12% tax bracket for a married couple using standard deductions?
I believe it's 72k after your 24k standard deduction so you could earn a gross of 96k and be in the 12% bracket. I just had my taxes done recently and if I remember correctly those were the numbers, I just made it in the 12%!
@@Churbitser thanks, that is higher than I thought.