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Your Retirement Savings and the 4 Phases of Your ‘Cash Bucket’

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The amount of retirement savings you need in your ‘Cash Bucket’ will change as your fixed income changes in retirement. 

If you’re not familiar with the ‘Cash Bucket’ or ‘Buckets of Money’ – you might find it helpful if you start by visiting our page explaining the ‘Buckets of Money’ concept first.

There are four different phases to your Cash Bucket needs.  Let’s take a look at these four different phases, and how much of your retirement savings you’ll want in your ‘Cash Bucket’ for each one…

The Four Phases of Your ‘Cash Bucket’

The amount of retirement savings you’ll need in your Cash Bucket will change as you go through retirement.  Here are the four phases of needs of your Cash Bucket…

  1. Pre-Retirement (Building Your Cushion of Cash)
  2. Start of Retirement (Covering the OPM Backlog)
  3. Some Fixed Income Starts (Filling Your Temporary Gap)
  4. All Fixed Income Is Coming In (The Long Haul)

Let’s take a closer look at each phase, and how much of your retirement savings you’ll want in your Cash Bucket in each phase.

Cash Bucket Phase 1)

Pre-Retirement (Building Your Cushion of Cash)

As you’re approaching retirement, you’ll want to focus on building up your Cash Bucket.

During Phase 1, you’re growing your Cash Bucket so it will be ready for Phase 2, your retirement.

You’ve probably heard the rule of thumb that while you’re working, you should have at least 3 months of living expenses in cash.

But as you approach retirement, this amount increases dramatically.

Going from employment to retirement is a huge shift in many ways.  While your living expenses may or may not change – one thing is certain – wherethe money comes from to provides for those living expenses changes.

You’re going from counting on your paycheck – to ‘writing your own paycheck’.

At retirement, I would recommend that you have (you may want to sit down for this) 12 to 24 months of living expenses in cash.

At Retirement – ideally you want to have 12 to 24 months of living expenses in your Cash Bucket. 

First, determine how much retirement savings you’ll want in your Cash Bucket for Phase 2 (which is 12 to 24 months of living expenses) – and during Phase 1 you’re building up that cash reserve.

It takes time to build a good cash reserve.  A good time for most people to start building up their Cash Bucket is about 5 years from retirement, but you could certainly start sooner.

Ideally – shoot to have built up your Cash Bucket to your Phase 2 needs when you’re still two years away from retirement.

Ideally – plan to have your Cash Bucket built uptwo years before your planned retirement. 

Why so soon?

  • What if you plan to retire in a two years, but a RIF happens?  
  • What if you have a health problem and you’re not able to work as long as you had planned? 
  • What if your job responsibilities are changed and now you just don’t enjoy your job as you did in the past?  It’s been fun – but it’s just not for you anymore.    

If you plan to be ‘ready’ for retirement 2 years ahead of your schedule – you’ll have more options.  

Cash Bucket Phase 2)

Start of Retirement (Covering the OPM Backlog)

When you retire, ideally you’ll have enough retirement savings in your Cash Bucket to cover 12 – 24 months of your living expenses.  

So if you are planning on living on $5,000/month in retirement – shoot to have 12 x $5,000 = $60,000 and 24 x $5,000 = $120,000 in Cash on hand for Phase 2.

Why so much?

Once you retire, your paycheck will stop.  But when will your CSRS or FERS pension start?

Your federal retirement may become ‘effective’ the month after you retire… but that doesn’t mean that your checks will arrive the month after you retire.  

You’ve probably heard of the OPM backlog of processing retirement applications.  Well, you’re about to meet it face-to-face… 


When Does Your Pension Start?

You may be one of the lucky ones whose checks start soon after retirement.  But most federal employees have to wait several months before their checks start.  And some will have to wait a very long time indeed.

You can’t predict when your first retirement check will come.  But you also have no idea how much that first check will be.

What About Interim Checks?

Most federal employees receive an ‘interim’ check that provides a portion of their retirement pension until their retirement package has been fully reviewed and the full amount of the check has been calculated.  

But you have no idea when your first interim check will arrive, and you also won’t know the amount of your interim check – until it arrives.  

Lately there is talk of increasing the amount of the interim checks.  While they talk about percentages sometimes as high as 90% for interim checks – that’s not what I’ve seen with my clients.

What I’ve Seen with My Clients

Some of my clients have received interim checks for 50% of their retirement pension.  So if they were planning on a pension of $2,000 – their interim check was $1,000.  

The highest interim payments I’ve seen have been around 80%.  But some of my clients never received an interim check at all.

I have had some clients where their check came with lightning speed.  They retired December 31st, and their first check came in February (even they were surprised!).  

But I have also had clients who went 8 months before an interim check was issued.  An interim check.  So say they retired December 31st, their retirement became ‘effective’ January 1 – but they didn’t receive an interim check until September 1st.  

What would you do if your paycheck stopped
and you went 8 months without even
a portion of your retirement check?

This is why having retirement savings in your
Cash Bucket is so important.

While there are often efforts at improving the processing time, or interim payments… the simple fact is that you can not predict with accuracy when your retirement checks will start.

This is just one reason why it’s so important to have a well-funded Cash Bucket.

But covering the OPM backlog ‘gap’ is not the only reason to have money in your Cash Bucket.  A well-funded Cash Bucket is an important foundation for the Buckets of Money concept.

However the OPM backlog is a big reason why the amount of retirement savings you need in your Cash Bucket is the highest right at retirement.

Cash Bucket Phase 3)

Some Fixed Income Starts (Filling Your Temporary Gap)

As your fixed income sources start coming in after retirement, your Cash Bucket needs will change again.  Keep in mind, especially for FERS, that your different streams of fixed income will probably not all start at the same time.

Once your federal pension starts coming in, you can shift to having 12 to 24 months of your ‘gap’ in your Cash Bucket.  If you live on $5,000/month in retirement, and let’s say your *NET* federal pension brings in $1,500/month – then your ‘gap’ here is $3,500/month.  

In this example, you would shoot to have between 12 x $3,500 = $42,000 and 24 x $3,500 = $84,000 in your Cash Bucket during this phase.  

Most FERS will also be eligible for Social Security in retirement.  But when will your Social Security start?

While you may be eligible to start Social Security at age 62, many FERS find it’s advantageous to delay starting Social Security in order to receive a higher benefit.  Everyone’s personal situation is unique – and it is possible to ‘wait too long’ and miss the mark deplete too much of your retirement savings.

Staring Social Security is an entire topic in and of itself – right now while we’re talking about your Cash Bucket – what you need to keep in  mind is that your fixed income streams will likely not all start at retirement.  And if you’re eligible for the FERS Supplement, your fixed income will be even more unique.

If you’ve never drawn your own income timeline, read our page about how your federal retirement income starts, stops and changes.

Everyone’s income timeline will be unique – and you may have several changes to your Cash Bucket needs as you go through this phase.  The rule of thumb is to have enough retirement savings in your Cash Bucket to cover 12 to 24 months of your ‘gap’.

So as your fixed income sources start and stop, you’ll want to adjust the amount in your Cash Bucket accordingly.

Cash Bucket Phase 4)

All Fixed Income Coming In (The Long Haul)

Once all of your fixed income sources are coming in, your Cash Bucket needs will probably ‘settle down’ and you’ll need less of your retirement savings in your Cash bucket.

Since you want to have 12 to 24 months of your ‘gap’ in your Cash Bucket – once all of your fixed income is coming in, your ‘gap’ will probably be at its smallest.

Let’s say you live on $5,000/month in retirement.  Your *NET* FERS pension brings in $1,500/month and your Social Security brings in $1,000/month.  Your gap in this case is $5,000 – $1,500 – $1,000 = $2,500/month.

So for this example, you’d look to have between 12 x $2,500 = $30,000 and 24 x $2,500 = $60,000 in your Cash Bucket.

Over your retirement, you would want to increase this amount for inflation – but once all of your sources of fixed income are coming in, the changes will not be as dramatic as they were before.

How Long Does Each Phase Take?

Everyone’s personal situation is unique.  How long each phase lasts depends more on when certain income starts or changes than a specific number of months and years.  

And keep in mind that especially for many FERS, it’s not unheard of to take 10 years before all of your fixed income sources are coming in.  For example, if you retire at age 56 your FERS pension may start at retirement – but you may decide to delay starting Social Security until age 66 (or longer).  

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