Big Red Bucket Theory

Big Red Bucket Theory

I’ve been ruminating on this bucket theory a bit recently.  Apologize in advance if it is still a bit jumbled, but thank you for letting me workshop on it here with all of you.  The bucket theory I’ve been contemplating has to do with being ready for retirement.  We get asked every day by clients when they can retire and how much they need to retire.

Bucket Theory

This is where my bucket thought comes into play.  Picture for me a big red bucket.  The bucket symbolizes your retirement savings.  Now, during your working years, your objective is to fill the bucket as much as possible.  Bonus dollars, monthly contributions, tax refunds, small contributions, large contributions, and the like. 

Now, let us assume that when you stop working, you are going to need to reverse course and start taking money out of that big red bucket to subsidize your retirement.  Now remember, you don’t have 2 or 3 buckets, just this one big red bucket.  The game we are playing is that this bucket, plus growth, has to pay for every expense once you stop working.  Can you picture it?  This big red bucket is filled with tons of cash. 

Now, the next exercise we must think through is how much total expenses, or hard dollars, we are estimating we will have to take out of the bucket during the entirety of our retirement years?  You got it?  We are effectively left with two numbers: dollars in the bucket we can assume by retirement, and dollars we need from the bucket during our non-working years.

Variability

Here comes the fun part, the variability of things.  People always want to know how much they need to retire, and what happens if they retire sooner.  Or tons of other variables, such as traveling more, buying a secondary home, etc.  Think of all these additional variables as holes in your big red bucket.  These holes, or variables, will start draining your bucket faster.  Conversely, if you work longer, inherit money, or spend less, it will have the opposite effect of filling up your bucket with more money.

The exercise we are trying to establish and help you visualize is that your ability to retire is completely contingent on how you fill up, and how many holes you have in your bucket that drain your funds.  Now it isn’t to say that holes in your bucket are bad necessarily, however, I do think it helps you visualize the fact that the more holes you put in your bucket, effectively making retirement harder than the more you need to fill up your big red bucket.

When you think about it, that is exactly what we are trying to help you identify as financial coaches.  We are here to help you identify how much you need in your personal bucket, and what your different dreams and aspirations mean as far as holes in your bucket.  We can help you generate different iterations of your ideal retirement in order to help you decide what path you want to take and what is feasible. 

Holes in the Bucket

As I said, I have been noodling on this concept for some time as an easy way to visualize and simplify personal finance.  At the end of the day, all we are trying to do is help you understand the cause and effect of financial decisions and help you strategize/plan for how to accomplish these goals. 

That leaves us with the question of what you need in your big red bucket, and how many holes will you put in it?  Answer these questions, and we are well on our way to figuring out your dignified retirement.

As always, stay wealthy, healthy, and happy.