Episode 67 – Extra Savings Buckets for Retirement Savings

Are you a retiree? Do you want to be?

If so, there’s something important that you need to know: saving money isn’t just for before you retire. It’s also important after you’ve retired and are living off your savings!

That’s because it’s essential to have extra savings buckets in place. These buckets can help you cover any emergency expenses that come up, or allow you to take advantage of opportunities when they come along. They can also ensure that your retirement income lasts as long as possible.

If you’re not sure where to start with extra savings buckets listen to the newest episode of Heart of Your Money today!

Show Notes:

 

Hey there. Welcome back, this is episode 67. 

Let’s talk today about savings buckets. You might have thought the savings buckets were done once you hit retirement. I’ve got news. You still need to be aware of your cash flow and have some buckets when you’re done working. Think of things like handling the household finance very similar to when you were working, the only difference is that you don’t have to fill the retirement savings bucket that would’ve been, for example, your RSP or pension account.

What I have noticed that people need going into retirement is the same process and organization of finances that was happening. Some of the buckets that stay into retirement are the cash emergency savings. That bucket is vital and that needs to continue on the household expenses, and then the travel bucket.

Most people, even if it’s a travel bucket just once a year or two, another city, only three hours away, or if it’s the multiple visits, different countries, doesn’t matter- still need a little bit of a travel bucket, just because families are spread around. We generally need to visit people, friends, and family.

You get the idea. It’s about keeping the buckets that were before retirement that will continue on. It works really well because rather than random pulling out of investments, it keeps you on track to stay within your cash flow. Spending keeps you accountable and makes you plan a little ahead and have some forethought, if there is extra. 

It’s a slippery slope to just start cashing in your tax free savings account or your registered money as things come up, there’s huge risk. It’s about depleting your accounts too soon, not keeping track. And then of course, who’s knocking on your door CRA. Then there’s the tax hit that maybe you haven’t planned or thought about.

What about new savings buckets that you didn’t think of that you’re gonna need in retirement? One common one. And of course, depending on personal priorities, so this isn’t for everyone, but it’s one that I’m seeing more and more in our office – is the savings bucket for grandchildren. Quite often. It’s nice to help save for their education savings, for those new little people in your life.

Post secondary education is getting very expensive. I know I’ve still got two adult daughters in university right now, and the price just keeps going up. And for some people it’s important to be able to help finance that. This might look like $50 a month per grandchild, or a hundred a month. In my house, there’s a saying, fair is fair. And what that means is, what one gets the other one has to have. However you coordinate that in your family, in your priorities. Think about is there a monthly amount and whatever amount you think you can afford? And it’s not gonna hurt you. This is what’s happening to a lot of retirees.  They’re wanting to help out grandchildren. 

In a previous episode, I even brought up the possibility of once your grandchildren start university, you’re no longer adding to that education savings bucket, bwcause you’re not getting the grants anymore. So you’re not contributing to their RESPs anymore.

Because they’ve moved on and they’re in university, instead of stopping this savings, you could allocate it to a first time home savings account for that grandchild. With the cost of housing, this is an amazing way to help kids buy their first home. So this is a bucket that you might not have thought of because maybe there isn’t grandchildren yet, but when the grandchildren do come, I am sitting across from people more and more making that a priority and they’re cutting things in their life so that they can at least put in 50 a month per grandchild.

Here’s another bucket you might have already had the discussion with your financial planner and accounted for it in your retirement income planning, or maybe not. That’s why I’m gonna bring it up. And it’s the car savings. It’s that car, vehicle purchase or maintenance that you’re gonna need. Eventually we’re gonna need an upgrade.

And sometimes it’s easy to not think about it because maybe we just bought a brand new one and we tell ourselves that we won’t need a new one during retirement. Or the common one is,  I’m gonna just drive this car for the next 20, 25 years. But I do feel like there’s a theme.

It’s like my washer and dryer. They’re not quite made the way they used to be. And, or there’s a lot more electronics. So the point being, we’re probably gonna need vehicles sooner than we think. Vehicles are hit hard with inflation and they just cost more and more. So if you’re starting retirement and you haven’t thought about the replacement because you drive a new vehicle right now, you really need to think about it.

I suggest you assess. If there might be a chance you need a car in the future, will you need a car savings bucket that might just be for maintenance or the purchase of a new one? The cost can come from a monthly savings bucket you start. Or it can be part of your financial plan, meaning the retirement and income planning shows an estimate of what year and then shows from what place you can take out of that bucket.

But it’s all about planning for it. And at least having this conversation, because I will say, we think we’re gonna continue to drive our one vehicle in through retirement. And I have seen, I can count it on both hands. How many times it’s been, oh, you know what? I think I actually need to replace it. 

So another cost that you might not have paid attention to before is your healthcare costs while working, you probably had health benefits through your employer.

The last month of employment is when you’ll be shopping around for a new health plan. You actually have 30 days from the last day of employment. So you should be shopping beforehand, but you have that last month before you finalize. This is where you might find out that you need an extra savings bucket each month to save for things that are either needed or important to you that won’t be covered anymore. Things like regular massages, acupuncture or chiro are items that are capped in on the healthcare plans that you transfer. They’re called conversion plans in retirement. They have a limit. If you think you’re going to need more, then a savings bucket will have to be important to you. Each month out of your retirement income, you allocate an amount into that bucket for the top up of massages or whatever it is that you think is important.

Another bucket that I know I am gonna have to account for, in fact I don’t even need to wait until retirement, the cost just keeps going up – but it’s about increased fitness cost. So the yoga classes, the weightlifting group at the gym, you name it. I’m excited to take classes and it’s not all fitness.

There will be education classes in there as well that are gonna cost money. Like a language class. I know retirees, my parents, they’re taking twice a week an hour and a half language class, and maybe some hobby classes. 

With extra time comes extra fun. That is most likely going to cost. I actually had a friend tell me, he’s retired, and he said, Zena, don’t ever take up golf. And I thought he was gonna tell me how horrible it was. And he goes, no, it’s addicting. He loves it. All his retirement fun money goes to golfing trips and fees.

So that’s just an example of, do you need to think about a savings bucket in retirement? These are just a few ideas. You’ll wanna keep in mind when planning out your retirement income and setting up the buckets for how to spend your money each month. 

Benjamin Franklin said it best, by failing to prepare you are preparing to fail. Until next week.

Take care.