After years of experience watching people in a variety of financial circumstances glide into retirement, I’ve assembled some best-practices to share with everyone.  The daunting task of saving for retirement takes years of planning and preparation.  Hitting that actual day of retirement feels, to many, like standing atop a high mountain peak.  The hard work is done, and it is time to joyfully celebrate the accomplishment and glide down into the golden years.  Easy, or is it?  Of the alpinists who die while climbing Mount Everest, K-2, and other peaks over 8,000 meters, the majority perish in the descent after having successfully reached the summit.  A few die from falls, accidents or avalanches, but the majority die from altitude-related sickness.  Many articles and books about mountaineering cite that 1/10 who reach the summit of Mount Everest end up perishing on the descent, and most deaths are tightly tied to poor planning.  Retirees face a similar challenge, and given the multitude of uncertainties, it can be difficult to know how to financially plan.  Take heart, the Pawleys 3 Bucket approach can give you some certainty and empower you by alleviating the stress and uncertainty of the descent into retirement.  Check out this strategy of matching income sources to expenses:

Bucket 1 – The must-haves including food, clothing, shelter:  This bucket includes just the bare minimum to survive, and I mean the minimum.  Think “Survivor.”  Your house should be fully paid for before you retire, so your expenses will include real estate taxes, your heat and light bill, water and sewer bill, food, and basic clothing.  Basic healthcare costs should come from this bucket as well, and any income tax.  Income Source: Social Security. *reminder, -you may need to save a little each month so you have enough money budgeted to pay annual bills such as your property tax*

Bucket 2 – Reasonable living expenses that increase comfort and convenience but are not extravagant: Niceties include non-essentials such as cable TV and computers, cell phones, pets, automobiles, health club memberships, newspaper subscriptions, dining out from time to time, gifts for family and friends, tithing, insurance, purchasing of basic personal and household items, and property association dues.  Income Sources: Pension, basic IRA and 401(k) retirement distributions (including annuity income streams), real estate rental income after expenses, business royalties.

Bucket 3 – Discretionary expenses and larger-sum gifts:  Travel, hobbies, gourmet dining and special activities/events, acquisition of collectables such as art and antiques, charitable giving and family gifting.  Income Sources:  Excess investment income, capital gains and inheritance.

As you match your income sources to expenses, try to identify which items will remain fixed versus those that will increase.   Be sure to consider your health history and plan for unexpected illness.  Many sources of income remain fixed while expenses rise, so a little planning goes a long way to make sure you not only survive but enjoy the descent!

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