You’re barreling down the highway at 75 mph.
You see a sign. Your exit is in 3 miles.
Do you pull into the right hand lane immediately?
Do you wait another mile?
Or do you flip on your turn signal and barrel across 4 lanes of traffic when you finally see the yellow
“exit”?
No matter what kind of driver you are, you need to get off the highway at some point.
But what’s the optimal time to get in the right hand lane?
The 2 Bucket System
Remember the two bucket system we use to create passive income in retirement?
You’ve got 10 years of living expenses in bonds. That’s your “living expense bucket“.
And the rest is invested in the stock market. That’s your “long-term money“.
But that’s once you retire. Before you retire you should have 100% in the long-term bucket because that
will grow the fastest.
When you get within striking distance of retiring, you need to set yourself up so that the day you tell
your boss to “take this job and shove it” you already have your two buckets in place.
The way we make that happen is about 5 years out from when you want to hang up the gloves, you
start putting your savings into bonds instead of the market.
You still maximize your 401k and HSA for the tax benefits, but the rest of your savings goes into your
“living expense bucket”.
That will give you enough time to adjust for changes in the bond or stock market.
Unlike saving for college where you’re trying to hit a bullseye, retirement investing is all about the
system.
The two-bucket system has plenty of wiggle-room built in, but typically we start setting it up 5 years
away from the on-ramp.
It’s like slowly moving into the right hand lane to keep your speed up as much as possible, but
also without being THAT guy who apparently didn’t see the last 4 signs for his exit.
