The 3-Bucket Retirement Strategy: A Case Study of Jake and Sally


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Retirement planning can be a complex task, with multiple variables at play. How do you ensure a steady income stream without depleting your savings too fast? Today we discuss a 3-bucket approach to retirement planning, focusing on a case study featuring Jake and Sally, who have $930,000 in their IRA/401K.

The Dilemma: A Large Nest Egg That Doesn’t Feel So Large

Jake and Sally, like many, wonder if their $930,000 retirement savings is enough. According to the 4% rule, they would only generate about $35,000 per year in income.

The Solution: A Three-Bucket System

We propose a system involving three buckets to create a structured and guaranteed income plan for Jake and Sally.

Bucket 1: The Immediate Annuity for Short-Term Security

We allocate $330,000 from their IRA into an annuity with Penn Mutual. This will pay them $6,000 monthly from August 2023 to July 2028, no matter what happens to the market. This will allow Jake and Sally to delay taking Social Security until they’re more financially beneficial ages. Tom, our annuity expert, explains how this annuity works in more detail in our video show notes.

Benefits of Delaying Social Security
By delaying Social Security, Jake can maximize his benefit until he turns 70, and Sally can start her smaller check at 65. This strategy gives them a monthly income of $7,500, or $90,000 a year, which is tax-efficient.

Bucket 2: The Long-Term Annuity for Lifelong Income

We put $300,000 into another annuity with Midland National. Starting in August 2028, this annuity will pay Jake and Sally $2,535 per month for life. Coupled with their Social Security, they will have a guaranteed income for life. Tom discusses the specifics and perks of this annuity, including some long-term care benefits, in our video show notes.

Bucket 3: The Flexible Bucket for Growth and Contingencies

The remaining $300,000 goes into a Multi-Year Guaranteed Annuity (MYGA) with Athene, offering a 5.3% guaranteed rate for 5 years. This bucket serves as a hedge against inflation and offers the flexibility to adjust the strategy over time. Tom outlines the guaranteed growth and options for this bucket in our video show notes.

Other Financial Cushions: The Importance of Additional Savings

In addition to these buckets, Jake and Sally have $200,000 in an emergency fund. This gives them extra room to maneuver financially.

Conclusion: A Customizable, Secure Retirement Plan

By using the 3-bucket system, Jake and Sally have set themselves up for a retirement with both security and flexibility. Whether you are looking to entirely remove market risk or still keep a foot in the investment world, this strategy can be tailored to your needs. Feel free to contact us for personalized advice.

Guaranteed Income – 3 Buckets of Money

Are you worried about not having enough money for your retirement? Meet Jake and Sally, our case study couple who face the same concern. In this video, Hans and Tom break down how to secure a guaranteed income for retirement using a 3-bucket strategy. They use Jake and Sally’s real-life example with their $930,000 in IRA/401K, and how you can adapt this strategy to your retirement plan.

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