3 Buckets Of Money

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Share it. But most of all, thank you for listening and for choosing the Truth Podcast Network. Well, welcome to Finishing Well, and with certified financial planners, Hans Scheil and Tom Griffith.

And today's show, oh, how fun. Three buckets of money, guaranteed income for life. And I couldn't help but note that based on the triune Godhead, you know, that's kind of a three in one where we get a guaranteed life for life, an abundant life on top of that.

And it kind of works out that when you listen to Hans and Tom describe these buckets of money, the first one is this practical thing that kind of gets us from where we are to the point where, you know, our retirement kind of really kicks in. And interestingly, the Holy Spirit really gets us there. I mean, He teaches us the things we need to know, and it shows us Christ until we get to the point where we can really begin to rest in Christ. And as we do that, you know, clearly Christ redeemed us so that we would really have access to the complete retirement plan, which is on the streets of gold.

But oh, so fun. There's this river that flows out that we're going to get a chance to see in heaven, and on the banks of that river are these amazing trees with fruits that we will enjoy for every season. And most of all, we'd be able to enjoy that Father, that Son, and that Holy Spirit. I can't even imagine the abundant life, and it's even better than three buckets of money, Hans.

Hans Well, it is. And so while we're here on earth, we deal with people who are in their 60s. Some people call us in their 70s. We get some planners that come to us in their 50s. But a lot of people are right around that age of turning 65 and going on Medicare, and it just seems like all our stuff is geared to them. Some people are in their early 60s. Some people are working past 65. And then we've got spouses of different ages.

But the case study that we're going to go over today is really representative of a lot of people that are coming in here, okay? And what the whole idea of the three buckets of money is, we're going to take this, you know, in this example, these people have just short of a million dollars. What's the amount over there, Tom?

930. So they got $930,000 in their combined 401k for Jake, 401k for Sally, and then IRAs for both of them. They don't have any Roth money, and they've got 930 grand, and they're going to retire like real soon. They're both 65.

And this is pretty intimidating. I mean, in a lot of these people's case, this money was more before 2022 happened. And so they've watched that go down just the year before they retire, which further unnerved them. And many of them come into us and saying, we're thinking of taking our Social Security now. In fact, I'm pretty sure we're going to do it, because none of this stuff sends us a check. We just want to, you know, we're going to take the Social Security, we know it's smaller, but we're going to do it just so we can have a check coming in the house. And then we're going to try to get by on that and just defer this thing.

I mean, that's where a lot of folks are when they come in to see us. And so then we ask them to put numbers to that. And once we help them do that, and then it just works out that it's probably not enough to live. So, hence the bucket plan. Okay, and the three buckets.

And bucket number one is pretty simple with this. In this example, this couple needs $6,000 a month to live, or $72,000. And that's before taxes.

But a couple that's over 65 that has $72,000 annual income, isn't going to pay much taxes. And you know, Tom ran the numbers on this, but they're going to be taking home most of that $6,000 a month. And to get there, we're going to take $332,000 of the $930,000, so about a third of the money we're going to put into this plan with an insurance company that's going to guarantee them $6,000 a month for five years. So now they've got their check that they want coming in the house that they can freely spend and use. And they don't have to worry about drawing down the money too much.

Because we're going to talk about bucket number two and bucket number three and what they can count on from that. So send these people away, they got $6,000 a month, they're paying very little taxes. And then then the next thing that we did is we've gotten them to delay Social Security. I'm gonna let Tom talk about the Social Security. Yeah, so I mean, in this sort of case study, Jake had a much higher Social Security check than Sally. And so it was more important for him to delay his check than it was for Sally to delay hers. And the reason for that is when the first spouse passes away, the lower check stops, the higher check stays. That's just one of the features of Social Security. And so we oftentimes get into a situation where we're having the spouse with the higher check delay. And if they really came to us, this is where, you know, Jake and Sally in this example, they really wanted to take it to it. Okay, well, why don't we have Sally go ahead and take her check, it's the lower check, let's get some money coming in. But we're going to delay Jake's check. And so she gets her check, which was $1500 a month, plus the 6000 a month from this annuity.

So the total monthly income they were going to receive would be the 7500 of gross income, we factor in the taxes, it worked out to about 6000 a month that they'd get to keep that they'd get to spend on. And this bucket one, this type of annuity, we use a lot when we have clients that see the benefit of delaying Social Security, they understand all the benefits you get, you know, those delayed retirement credits, getting the higher check, leaving the surviving spouse in a better position. But they just can't get their hands around how do we spend our money, it just, you know, behaviorally, it's really painful to take money out, especially if the market's going down, we just went through 2022, when the market was going down, how do we do this in a way that we just feel comfortable with this, this bucket really serves that purpose, it gives you a fixed income, a known amount, no risk, no what ifs, and it just gets checks coming in the door kind of right away. So bucket one is great for that. Yeah, and bucket one is gone in five years. Okay, it's paid out. But bucket number two and bucket number three are growing for the same five years.

Okay. So and what bucket number two is, is another annuity. And this is an annuity that has a guaranteed income for life. And it's the life of both of them.

So we don't know how long they're going to live, they don't know how long they're going to live. But once we turn on the income from bucket number two, which we're going to project that we're going to do that right at the beginning of the sixth year, right, when they're turning on Social Security, right, when bucket number one is depleted, and we're going to turn on the income for this, we put $300,000 in this right away when they're turning 65, or right when they're 65, when they're doing the thing. And so right when they're turning on their Social Security, that $300,000 has grown substantially.

And it is now going to pay out $2,535 a month. And those checks are going to keep coming as long as either Jake or Sally is alive. So Jake passes at 75. And Sally makes it to 98. Sally's getting checks out of this thing for 2535 a month for life.

Okay. And then she's also the couple are getting now Jake's Social Security added to Sally's. And so Jake's Social Security is how much time that was about 3500 a month added to the 1500 that Sally was receiving. So total Social Security coming in is five grand a month, plus the 2535 from the annuity that's coming in on top of Social Security. So they have the same 75 just a little over 7500 a month like they were previously.

More of that is from Social Security, which is taxed more preferentially. So they actually get to keep more of that money than they were when the money was coming out of bucket number one. So then bucket number three is we have a lot of discretion with this and they have a lot of choices. And, you know, you come to us on this plan, where we're splitting it up in three buckets. And this is kind of where we put the money that we don't immediately need to create income.

And it's going to have 300,000 going in there. And what we're showing in this example, and it's on the video, is putting it at 5.3% interest guaranteed for five years. So that 300 grand put in at the very beginning is going to be guaranteed to be 388,386 dollars right here at this point where they're the five year point, or the age 70 point for both of them. And we have a lot of discretion as to what we do with that 388,000. We can create more income, we can put it in another one of these, we can take some of it to supplement income, we can keep deferring it to a later age when they might possibly need a big inflation kicker.

There's all kinds of options. And then some people don't, you know, the 5.3% interest the guarantee doesn't sound all that great to them, they want to invest it. And so we can invest all of it or part of it and try to get a bigger return than that. Look at a longer horizon, but it's just dividing up the 930 grand, 330 and something to take care of their income for five years, 300 grand thrown into something that's going to produce an income starting in five years, and then another 300 grand in just kind of where their money is now, just this miscellaneous account that's growing that's going to be available to them later in life for undefined purposes.

Right. And the really nice thing, as I recall in the case study that I watched on the YouTube video, was this family also had another savings account that they'd already paid tax on. So if they needed a new roof or something happened with one of their kids and all that kind of thing that really didn't affect those other three buckets of money at all, right? Yeah, I mean, we have a tax plan. So all of this stuff, you know, where we've got the, you know, which I'm corrected down 90,000 coming in for the five years, part of it being Social Security, Sally's Social Security. And then, you know, then his Social Security, we've projected taxes in here, and they're pretty low on this whole thing.

But they're there nonetheless. And if you go start pulling money out of bucket number three to pay for things like roofs and air conditioning and that kind of thing, you're going to throw the whole tax plan out of whack. So what we like to do is we like this when people have some significant savings in their example, I believe it was $200,000 that they have of money that they've saved up that's in CDs and, you know, money market accounts, that kind of thing. Of course, when we catch people before they're immediately ready for retirement, and they're coming into us, and we're putting together a plan, we try to build those accounts. So they're in this situation when they retire that they, you know, they've got a reserve fund. But after the break, I'm going to talk a little bit about some things we could how we could use some of that money to do some Roth conversions in here. And I'm going to show you how and where we do that.

Yeah. So we want to remind you right now that the show is brought to you by Cardinal Guide, cardinalguide.com. And there you're going to find the Seven Worries tab. And today is obviously income and in retirement. And of course, there's a YouTube video along, a very helpful YouTube with show notes, and all sorts of details on what these accounts are and those kind of things, as well as, of course, Hans's book, The Complete Cardinal Guide to Planning, Foreign Living, and Retirement.

Of course, there's a tab there at cardinalguide.com. And of course, my favorite part, How Do You Get Up with Hans and Tom because, as you can see, it is not a cookie cutter approach to everybody's situations different. But wow, what a what a way to have income and have it abundantly for life.

So we've got so much more coming up. Stay tuned. Investment Advisory Services offered through Brookstone Capital Management LLC, abbreviated BCM, a registered investment advisor. BCM and Cardinal Advisors are independent of each other. Insurance products and services are not offered through BCM, but are offered and sold through individually licensed and appointed agents. Cardinal Advisors is not affiliated with or endorsed by the Social Security Administration or any other government agency. Welcome back to Finishing Well with certified financial planners, Tom Griffith and Hans Scheil.

And today's show, very fun, of three buckets of money. But we've got some disclaimers, right, Tom? Yeah, I mean, I think it's important to acknowledge that, you know, in this case study, this was specific to North Carolina at this specific point in time. These rates can change.

It can be different from state to state. So if you're interested in something like this, we'll need to rerun the numbers. And your situation is likely a little bit different than theirs. So this is not a recommendation. It's just an example of ways that you can use these different annuities to set up a bucket strategy to really kind of ensure your income where there's less uncertainty and then reliance on market performance there.

I do want to spend a little more time going into bucket two, because of the three buckets, bucket two can do the most things, but it's also probably the most complicated of the three. And so let's spend a little bit of time talking about it. But what specifically it is is a fixed index annuity with an income rider on there.

And all the jargon doesn't mean a whole lot to you. But some of the points I want to make on this one is what's included in this particular contract is the ability for that income to be doubled if either one of you are unable to perform two of the six activities of daily living. And so if you listen to our show or you're familiar with this at all, that sounds very similar to what long-term care insurance does.

This isn't long-term care insurance, but it has a benefit that increases the income, it doubles the income to help you pay for that care, presumably right when you kind of need additional money to help cover that cost. So that's a nice added benefit that's just built into the policy. The other really nice thing about bucket two is you don't have to tell the company when you're applying for this when you want the income to start. Whereas bucket one, you're giving them the money and they're starting that income kind of right away. Bucket two, say you're a little bit in advance of retirement, you're thinking of retiring in a couple of years, you want to set up something like this, we can go ahead and set up bucket two for a future income and it wouldn't take as much money as we've done in this example because you're starting it earlier. Alternatively, if you're kind of on this example we've laid out and you get to the end of the fifth year, bucket one has stopped producing income, you start Jake's Social Security kind of at 70 and you don't need the additional income.

You can further delay bucket two and the longer you wait to take it, the higher the income is. So there's some flexibility when you start that. One thing that Hans and I have done with other clients or other case studies is where we will go through and we will maybe instead of buying one $300,000 one, we buy maybe three $100,000 contracts.

The numbers work out exactly the same. Three $100 ones is the exact same thing as one $300 one, but now you have some flexibility of when you start the income. You could go to one contract and start it in one year, wait another year, start the second one and then start the third one later on. It gives you some flexibility of starting that benefit. And then Hans, I'll let you speak a little bit of how that can be beneficial as well. Well, yeah, and then we're preparing for Roth conversions and we're going to need to feel like the clients, number one, have the flavor for Roth conversions and they understand what they are. But if we break this into three pieces, so it's $100,000, $100,000 and $100,000 instead of one $300,000 contract, then we can spread the Roth conversions of this in-force annuity out over three different years and we can pay the taxes for that out of the savings that they have on the sidelines. And so now we're talking about tax-free income later on down the road and that, you know, people have a flavor for that. We can twist this stuff around. Furthermore, some people are thinking, well, gee, I want to take this to the max.

I want to get it all converted. Well, we could take that $300,000 annuity in bucket three and we could do the same thing with it. We could have three units of 100, which produces the same result, but we could convert them all in different years with the assumption that like $100,000 a year for six years and then we could have all of their IRA money turned into Roth. I mean, that's pretty extreme, but we have the capacity to do that and every client's different, but, you know, you can, there's a lot of different ways to set these things up. I think one thing just to keep in mind with all of this is that your situation is different. Everyone's situation is different here. And so you might not need as much money. You might have a pension in here. And so all these numbers are really just an example.

But one of the things that we run into a lot in our practice are people that are needing income. They're concerned about market performance. I mean, 2022 was sort of an eye-opener for a lot of people. I mean, we've been through many years of just really great growth and they sort of have forgotten what it feels like to lose like a big chunk of money in a single year.

Now, luckily, at least up to this point in 23, some of that's come back, but, you know, who knows what the future holds. And so when you're going into retirement, you're really starting to feel the sort of the gut feeling of like, man, this doesn't, this is kind of scary. I'm worried about losing money in the market right as I need it to produce income that leads people to taking social security early, which oftentimes is not the best plan. It leads to them, you know, not spending any of their money, not enjoying it.

And so that's the other extreme. And people then just cut way back on their spending. They don't live the lifestyle they really envisioned in retirement, even though objectively they have the money to do so. What this plan has really laid out them is it gives them the freedom to enjoy that income. It's all guaranteed from these insurance companies that they could go spend it. And they know the next month they have a check coming in. So it provides a level of just comfort for some people.

But again, it's not right for everybody. Some people are comfortable taking that risk. Some people like the ups and downs of the market. And that's where bucket three really can come into play is if you really want to have some money still in the market, still invested, enjoying the gains when they're up, being okay with the losses when they're down, you can have some flexibility in that bucket number three.

Well, yeah, I mean, if you had, let's just take an example and reframe this a little bit. Let's say that they had 1.5 million in their combined accounts instead of the 930, okay? And they were very much interested in the market. And they've done, that's the reason they had 1.5 million is that they've enjoyed these bull markets over the years and suffered through the bears.

And so they're not all in, they're somewhat in, they want to delay Social Security, they want to be getting a check. And so we could just use bucket number one and bucket number two and eat up $630,000 of their 1.5 million, do everything like that. But just now instead of having 300,000 in bucket number three, we've got a portfolio of about $900,000 that we're now is all at risk. And then we started to say we got this other 630,000 that we've produced that you're just going to have a guaranteed outcome.

And that guaranteed outcome is going to last as long as either of you do. And so now we got the 900,000. Some people want to stay involved in the market, they want to stay invested. Most people, when they're at retirement age, they want to lower their risk a little bit. So then we could do that with fixed income securities. We could also do it with these multi-year guaranteed annuities. I mean, there's all kinds of ways that we could break up that 900,000 and still have them participating in the market and the upside of the market. So I think another important thing to know that we haven't really talked about a lot yet is if you're not comfortable with annuities, you never really heard about them so much, a question that we get pretty frequently is what happens if we do this?

This plan sounds great. What happens if we do this and I pass away? Is this money just gone? And so for bucket number one, and that's the one that pays for the five years, there's going to be a check that's coming in for that five years guaranteed. So if you pass away, like in this example, let's say Jake passes away after one year, Sal is going to continue getting that check for those five years. If both of them are in like a car accident, as an example, their kids are going to get the check for the remainder of that five years.

There is money coming in for that five-year period guaranteed. So that's bucket one. Bucket two is there is an account balance. You've put this 300 there, it's grown over time, and then you start taking money out, but that account balance is still your money. And so if you passed away and there was a remaining account balance left in that contract, that's going to go, well, when the first spouse goes, it just goes, the second spouse continues on, but when both spouses are gone, that money, the remaining money still goes to your beneficiaries, your kids. And as an example, if you lived into your nineties, both of you lived into your nineties, there's a fairly good chance that bucket two, the account balance is down to zero. You're still getting a check even at a zero account balance, which is great, but there would be no money remaining for your kids. But that's where bucket three really comes into play is that money, that full balance is going to your kids when both of you are gone, plus whatever it's grown to with the compounding interest, whether it's in the market, whether it's in the migrants, no matter what it is, that money there is going to go to your kids upon death. I think the other thing to just think through here is these buckets, again, bucket one is the fixed annuity, bucket two is the fixed index annuity.

And again, there's some differences there. And bucket three is the my guess. So again, if you have questions, call us, we can create a plan similar to this for you guys, if you're interested.

Just listening to him talk, I'm so proud of Tom. I mean, he has really really command of all this stuff, better than me. So this three bucket plan seems to work pretty well with people that have 400, 500, 600, on up to a million of IRA 401k money. And usually it's two people that have that. And then there are people that were going to delay Social Security.

And there are also people that are really frightened of losing money from down markets, and the timing of that. And so this thing works pretty well, or some version of it, for people like that. But this is just one strategy that we use. And we have lots of different ways to secure your retirement, to plan for future income, to reduce taxes, and reduce the taxation on estate.

Right. And we want to help you with that. And the simple thing is just go to cardinalguide.com. And there you'll see how to connect with both Tom and Hans. And of course, today's show was on income, one of the seven worries, and lots of show notes and all that stuff under that tab at, again, again, cardinalguide.com. Thank you so much, guys.

Thank you. The opinions expressed by Hans Scheil and guests on this show are their own and do not reflect the opinions of this radio station. All statements and opinions expressed are based upon information considered reliable, although it should not be relied upon as such.

Any statements or opinions are subject to change without notice. Investments involve risk. And unless otherwise stated or not guaranteed, past performance cannot be used as an indicator to determine future results. Any strategies mentioned may not be suitable for everyone. Information expressed does not take into account your specific situation or objectives and is not intended as recommendations appropriate for you. Before acting on any information mentioned, please consult with a qualified tax or investment advisor to determine if it's suitable for your specific situation.

Finishing Whale is designed to provide accurate and authoritative information with regard to the subject covered. Investment advisory services offered through Brookstone Capital Management LLC, abbreviated BCM, a registered investment advisor. BCM and Cardinal Advisors are independent of each other.

Insurance products and services are not offered through BCM but are offered and sold through individually licensed and appointed agents. Cardinal Advisors is not affiliated with or endorsed by the Social Security Administration or any other government agency. We hope you enjoyed Finishing Whale brought to you by cardinalguide.com. Visit cardinalguide.com for free downloads of this show or previous shows on topics such as Social Security, Medicare, IRAs, long-term care, life insurance, investments, and taxes, as well as Hans' best-selling book, The Complete Cardinal Guide to Planning for and Living in Retirement and The Workbook. Once again, for dozens of free resources, past shows, or to get Hans' book, go to cardinalguide.com. If you have a question, comment, or suggestion for future shows, click on The Finishing Whale radio show on the website and send us a word. Once again, that's cardinalguide.com. Cardinalguide.com. This is the Truth Network.