Learn an easy way to create a great Railroad Retirement.
Welcome everyone to another edition of the Highball Advisors Railroad Retirement Whiteboard. My name's John McNamara of Highball Advisors. And today we're going to talk about creating that retirement paycheck. And then I'm going to show you a safe way, high level, not very detailed, but a high level way that you can start thinking about creating that retirement paycheck.
So here's the questions that we want to ask. How much money do you need in retirement each month? A very, very important question. Now this is very simple, because this is just going to be a static number. Obviously, it's a lot more difficult, and I explain that in other videos. But I just want to keep this simple. So how much money do you need each month in retirement?
And then, the second is, well, now that I know the amount, where does that monthly paycheck or amount that I need come from? So, I'm going to take an approach here. It's called a buckets approach and how we answer that question. Specifically, the second question.
So this is the bucket approach. Two buckets. One is a safe bucket and the other is a growth bucket. And inside the safe bucket is your railroad retirement income. Maybe you a pension, I don't know. Perhaps social security, maybe a spousal social security, something like that. You have cash in there and CDs. So that is safe. That is a no number. There's no market risk on that. You have that money in this bucket, the safe bucket.
Then we have another bucket and we call that the growth bucket. This is the risk. This is where we're going to build wealth in. So, you can have your ETFs, stocks, bonds, mutual funds, all those things that grow over time, supposedly. Growth. All right.
So those are the two buckets. So let's say, how does this work? So let's say, let's give an example up here. Let's say a railroader, a couple, needs $6,000 a month in retirement. Fantastic. A great retirement, $72,000 a year. So let's say their RRB and all the other stuff, social security or whatever, that's $5,000 a month for the couple. Maybe they did it 20, 25 years in the railroad, 30 years, but they get guaranteed 5,000.
So what do they need now? They need another $1,000 a month to afford their lifestyle. So let's say they have a 401k of $500,000. So what they would do is say, "Okay, well I got $5,000 a month coming in and I need another $1,000 to fill up the cash bucket to get that." But how long should this bucket last? Well, the way I come up with it, it should be a four year bucket. So basically, every 3.6 years between bear markets. All right. So you want to be invested, but you want to hold your money in there. So you can ride out any bear market, just figure four years.
So now what do I need? So I need $1,000 a month, 12 months in a year. That's $12,000 a year times four, $48,000. So if I have a million dollars, I'm going to take $48,000 out of my 401k and put it in this bucket. So now I know this is the bucket. I know for four years, I don't care what the market does. Obviously, everybody cares, but I know I have all my expenses covered for the next four years.
And then in here I'll have the balance, which would be $452,000 growing. A nice diversified portfolio in here. Some stock, ETFs, bonds. We're just going to let that money grow. And that can go for four years. Now, what you can do with this is say, "Hey, every year let's take $12,000 out of here and replenish our four year bucket." We can just replenish that every year, taking $12,000 out of that every year.
So that's high level, that's bucket stuff. That's something you might want to think about railroad retirement. So reach out to me, sign up for my Boarding for Railroad Retirement Process. And I'll go through with you on what that retirement paycheck looks like and how you're going to get to it. That's a free assessment that I do for railroaders. Very good stuff here. You can do this yourself if you want to, build your own buckets.
Some people will even maybe have a third bucket, which might be an intermediate bucket of more fixed income, that type of thing. So sign up, like I said, sign up for that Boarding for Railroad Retirement Process and we'll work through this stuff with you.
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So everyone, in the meantime, please stay safe, stay on track, and take care. So long everybody. Bye.
Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. Highball Advisors encourages you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Highball Advisors, and all rights are reserved from Highball Advisors, and all rights are reserved.