I listen to a lot of financial gurus. I need to be honest. I don’t understand what most of them are saying. Especially the men. For some strange reason, I understand perfectly what female advisors spew. I don’t know what it is. Men, I think IMHO, speak a financial language that only other men can understand. Women, I think IMHO, speak to other women and that’s probably why I understand more what women advise than men. But it’s just a theory of mine.
I watched an episode of Wealth Track, hosted by Consuelo Mack (a woman, of course) where she recently interviewed Jane Bryant Quinn (again) regarding retirement and how to make your money last for your entire retirement. You can catch this particular episode on YouTube by clicking here. (I’ll post the whole episode at the end of this post anyway) I understood every single word she said. I borrowed Quinn’s book out of the library this past weekend; I read it; I understood every single printed word also.
What we retirees have to understand, me included, is that our investing lives don’t end when we turn 65 and start collecting Social Security. We have a good twenty to thirty more years to live, while in retirement and we need to learn and understand how we are going to make our money last that long. I think we can all agree that we all are equally worried (unless we’re gazillionaires) that we could possibly run out of money in retirement if we live too long. I know my own father was very sacred about running out of money in his retirement, despite him having $8,000,000 (eight million dollars) in the bank! He used to make my sister withdraw over $50,000 cash at times and he used to spread it all out over the dining room table. It’s not funny nor is it sad. It’s a real, honest-to-goodness fear for the elderly. And I am no exception. I am starting to worry about it also as my husband’s work days are finally winding down.
Quinn offers a system, called a Three Bucket Investing System that sort of makes sense to me (as in: I can understand this method!) when your weekly paycheck stops and your retirement life starts. I am NOT a professional nor am I qualified to give out financial advice. I can only write and discuss what I would do or am doing. What works for me may not work for you. I do, however, recommend that you read Quinn’s new book and watch her interview with Ms. Mack.
Most of us are old enough to know that the stock market rises and falls. We have good times. We have bad times. We have recessions. We have euphoria. We have inflation. We have stagnation. What Jane Bryant Quinn stresses, more than anything AND what all financial investors stress is” The message is that average prices for the leading stock-market index have always recovered and usually within a reasonable period of time. Individual stocks, however, do NOT necessarily recover. That’s why it is too risky to buy them.”
Your first bucket, should be made up of cash. Figure out how much cash you need to sustain you for five years (less social security, pensions and other guaranteed sources of income). This bucket is your go-to place as the stock market dips, rises, falls, whatever.
Your second bucket is for fixed income and should consist of bond funds. The bonds can be a mix of short and intermediate funds.
Your third bucket should be growth stock funds, which is very risky but needed nonetheless. Seek out a financial advisor if you must, but invest in both bond and stock funds that are low cost. You also need to set up a ratio of what percentage of your money should be invested in bonds and the remaining percentage in stocks. me personally, at my age (68) I would put 70% of my remaining money after I set up a cash account, into bonds and the remaining 30% into stock funds.
PLEASE BE ADVISED THAT I HAVE NOT DONE ANY OF THE ABOVE. EVER.
What I have done, however, unbeknownst to me, is follow Quinn’s Two Bucket Investing System for the super duper conservative investor. One bucket holds my three-year cash reserves. The other bucket holds ALL the rest of my money in super-safe investments such as CDs and Treasury Bills. My lifestyle, because of this method, is modest but secure. I blame our low risk tolerance on myself because I’ve gone bust twice in my lifetime. I just can’t take any risk because the third time I go broke will NOT be a charm. We really can NOT afford much risk anymore.
If I were to take, say $200,000 and follow the two scenarios up above, Quinn’s way and MY way, here is how it would work out. With Quinn’s way, I would have $50,000 in my first bucket, earning 1.57% in a Money Market netting me $63.33 per month. In the second bucket I would have $105,000 invested in corporate bond fund, 5 star rated by Morningstar @$11.90 a share, giving me 8823.52 shares paying a monthly dividend of .033770885 netting me $297.97 per month. The remaining $45,000 would go in to the third bucket of the top 500 Index fund @103.92 per share, giving me 317.55 shares with a monthly dividend of .48 per share netting me $297.85. My total monthly income would be $444.41.
The second scenario, which is my two bucket system, would have me putting $50,000 in the first bucket, as listed above netting me $63.33 per month. The remaining $150,000 would go into a second bucket, super safe, FDIC CD earning (at current interest rates) 2.7% netting me 337.50 per month. My total monthly income would be $400.83. That’s $43.58 less a month doing it my way vs Quinn’s way.
When I discussed this with my husband, he saw things a bit differently. That’s why it is always good to speak to your Significant Other or some other confidant about money management. Doing the investing in the two bucket system, relieves us from any stress the vibrations of the stock market may cause. At the end of the day, we still have our core money. Earning a mere $43.58 a month (maybe, if the market didn’t shift, but it always does anyway!) was not enough money to make the risk tolerable. Doing it the Quinn way, the core money can go up or down. When it’s down, we have to go into our first bucket and withdraw money out of it just to pay our bills. We also have to know how to rebalance the whole darn thing. When interest rates go down, bonds go up. If interest rates go up (which they won’t for now) I could lose the whole kit and caboodle bond fund if I didn’t rebalance soon and fast enough. (rebalance means selling bond funds and buying stock funds and vice versa).
My husband’s advice was to stay the course. He still has 2.5 more years to go until he officially retires, collects Social Security and Medicare. When we have more guaranteed income that can comfortably pay all our bills (provided we don’t do the lifestyle inflation thing) then and only then should we invest our futures with Wall Street.
If it were just me, I would follow Quinn’s advice. I’d take the chance. I’d go with the risk. But then again, maybe that’s why I went bust twice. Hubby had to bail me out both times and he told me, in no uncertain terms, he won’t and can’t bail me out again. I’m going to have to learn to tow the line, in retirement. Follow our budget. Follow our plan and heed a man’s advice.