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🏖️ Fun Bucket 101: How to Spend Guilt-Free in Retirement! | Mark Trautman & Kevin Sebesta 🚙
1.2k Plays2 months ago
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🪅 The Fun Bucket is a transformative strategy to help retirees shift from a saving to a spending mindset, enabling guilt-free enjoyment of retirement.
📈 In this episode, Kevin Sebesta, creator of the Life in FIRE blog, and Mark Trautman, a seasoned voice in the FI community, share how the Fun Bucket can enhance your retirement by balancing financial security with intentional spending.
In this episode, we discuss:
1️⃣ What is a Fun Bucket?: Kevin and Mark explain the concept and its importance in retirement planning.
2️⃣ Shifting from Frugality to Fun: Learn how the Fun Bucket helps retirees break free from the frugal mindset.
3️⃣ Managing Your Fun Bucket: Practical tips on allocating, spending, and replenishing your Fun Bucket.
🔗 Kevin’s Links:
🔗 Mark’s Links:
▶️ Mark's Money Mind Podcast on YouTube
🔗 David's Links:
🎧 Forget About Money on Apple Podcast
🎧 Forget About Money on Spotify
📜 Kevin Sebesta Quote:
💡 "The Fun Bucket lets you take some of the icing off the cake and use it for experiences that create memory dividends, which can be far more valuable than just having a little more money in the bank." — Kevin Sebesta
📜 Mark Trautman Quote:
🔗 "If you don’t spend it, your inheritors gladly will. That thought has influenced me to use the Fun Bucket and enjoy the wealth I’ve accumulated while I can." — Mark Trautman
📝 Episode Highlights:
💡 The importance of balancing savings and spending in retirement
🚀 Practical tips for managing your Fun Bucket
🌟 Shifting from frugality to a spending mindset
#retirementplanning #PersonalFinance #moneymindset
🎧 Listen & Subscribe: Don’t forget to subscribe to "Forget About Money" for more insights from financial experts like Kevin Sebesta and Mark Trautman. Hit the bell icon 🔔 to stay updated on new episodes!
🕒 Timestamps/Chapters:
0:00 - 🎙️ What is a Fun Bucket?
5:12 - 💡 Overcoming the Frugality Mindset
10:13 - 🛠️ How to Start Your Fun Bucket
15:24 - 📅 Managing the Fun Bucket
20:37 - 🎉 Guilt-Free Spending in Retirement
25:18 - 🎯 Allocating Funds for Maximum Joy
30:29 - 🌟 Memory Dividends Explained
34:29 - 🔄 Adjusting Your Fun Bucket Over Time
38:47 - 🧾 Fun Bucket vs. Traditional Budgeting
43:12 - 🥳 The Impact of a Fun Bucket on Your Quality of Life
Disclaimer: This discussion is for educational and entertainment purposes and does not constitute financial, legal, or investment advice.
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Transcript
Introduction & Hosts
00:00:12
Speaker
Welcome to the Forget About Money podcast, where we encourage you to take action today so that you can focus on what matters most to you. In this episode, we're joined by Kevin Sebesta, a former professional who retired early at age 43 and now shares his insights on financial independence and intentional living through his blog, Life and Fire.
Kevin's Early Retirement Insights
00:00:32
Speaker
Alongside him is Mark Troutman, a seasoned voice in the fire community who after 25 years in investment management,
00:00:39
Speaker
shares his thoughts on his Mark's Money Mind blog and podcast. Gentlemen, welcome. Great to be here. Hey, thanks.
The 'Fun Bucket' Concept
00:00:47
Speaker
Today, they'll discuss the concept of the fun bucket, a strategy for enjoying life in retirement without compromising the financial security. So let's start first with you, Mark. How did you first hear about the fun bucket concept and what made you decide to incorporate it into your retirement strategy?
00:01:08
Speaker
Well, so the first person that mentioned it to me was Kevin, who was on this podcast. And we were attending a campfire in California in 2021. And I actually stayed at his house beforehand. And of course we talked way into the way late hours, early morning hours.
00:01:27
Speaker
And he was asking me how i was drawing down on my portfolio and i explained that while i did have a drawdown plan i was spending less than two percent of the portfolio a year. And he's like you need to loosen the strings you need to spend more and i was like yeah but i feel like i'm doing everything i want he's like you to find bucket.
00:01:47
Speaker
I said, well, what is a fun bucket? And then he described what it is. And I'm sure he will go into more detail about what it is, but that's how it started. And from that day forward, I've had this fun bucket and it's just made me able to spend more comfortably, uh, well above the 2%, you know, kind of where I was. I can throw it over to Kevin and he can explain a little bit about more about what it is exactly.
00:02:12
Speaker
Yeah, Kevin, can you define what a fun bucket is and and why should retirees even consider creating a fun bucket in
Beyond the 4% Rule: Financial Strategies
00:02:19
Speaker
the first place? so I think, um yeah, Mark and I were having discussion and our stories where we've been retired a few years and our accounts had gone up with the great returns of the market and we realized um we probably should be using some of that money. And so we talked about it being icing on the cake and pulling some off and it's, well, I should share that we're going to say this is not the 4% starting withdrawal rate increasing for inflation discussion that most retirees hear about or five people live by. This is a different strategy. So a lot of it came from the retirement and IRA show.
00:03:04
Speaker
podcasts with Jim and Chris, where they talk about having lifetime secure income for your base, great life, your minimum dignity floor, which is really just what it costs to live. If you had no money in your savings accounts anymore, making sure your food, utilities, transportation, housing, and healthcare were covered for a a long life, let's say into your mid nineties.
00:03:28
Speaker
And then there's some set of sides for aging assistance, inheritance, special needs children, um a buffer category. And then once all those funding, all those requirements are funded with your assets, there should be money left over if you have this buffer. And that's what they call the fund number. And Mark and I turned that into the fund bucket, which is something we could actually use.
00:03:55
Speaker
And that's how we, we both had heard about this, but we neither was actually tried to
Mindset Shift: Saving to Spending
00:04:01
Speaker
use it. ah Mark, you were spending 2% I guess in retirement and then therefore you clearly had a buffer there. Uh, is that right? Right. So I retired at the end of 2015 and this discussion was in the summer of 2021. And as you know, the biggest concern is sequence of return risk, right?
00:04:19
Speaker
And I was spending you know sub 2% for that first five years. And at the same time, the market was doing quite well during that period. So there was a lot of kind of excess that had built up as a result of spending way below the 4% rule, for example.
00:04:36
Speaker
And also the wind in my back and that's where Kevin said you just need to take some of that kind of cream off the top the icing in the sprinkles. And move it over into this other account and just start being more comfortable spending on things that you wouldn't ordinarily do.
00:04:52
Speaker
And so it was kind of like you're way ahead of the game because of two reasons, spending way under what you could, even in a bad sequence and you've had a good sequence. So because you're frugal and you you know have no need to do it, you need to segment it in a separate area and allow yourself to spend.
00:05:15
Speaker
I think that's something many people in the fight community struggle with because you spend all this time just saving, saving, saving and you know running math problems and simulations and Monte Carlos and 2% versus 5% versus 4% versus 3.21654%. And now that both of you are on the other side, looking back,
00:05:38
Speaker
What do you think of that mindset and is it, for lack of a better word, is it silly to think like that, knowing what you know now? I think um a lot of people in the Fi community get to the successful position they're in by having structure and by saving and spending intentionally. And I don't think that goes away after 10, 20,
00:06:02
Speaker
30 years if you're getting older. And that's hard to break that habit of the safety. And I think the fun bucket thing, I don't think we mention it, but it's really a goal, a target, a requirement to spend this money. It's not just set aside for use. It's like, use this or someone else is going to use it at your end of plan. And that's the big push is their the requirement, I think also the 4% rule has is the safest withdrawal rate for a 30-year retirement based off historical person purposes on a 50-50 portfolio, meaning ah you're probably going to limit spending in your early years while your portfolio is growing if it's not the worst case. And then you're going to die with money
00:06:56
Speaker
And you could have used some of that or carved part of that off earlier for free spending, which is totally outside your personality if you're in the fight community.
00:07:08
Speaker
Yeah, I would say it is a difficult mindset shift going from being an accumulator, being frugal, thinking about how you spend during all of those years of accumulation and then flipping a switch and saying, now you can spend your money. I find that is the hardest thing. It was hard for me. And ah I have found the people I've spoken to who have retired.
00:07:32
Speaker
you know, onto their portfolio, it's a very difficult mind shift. And we have to kind of retrain ourselves. So for me, the fun bucket was a retraining mechanism to allow me to spend this money that I've accumulated over all of these decades. And I think also because I wasn't doing it at the outset, that snowball just continued to grow and grow and grow. And now it's kind of like I'm chasing the snowball down the hill.
00:08:01
Speaker
Um, and it just, it's kind of running away from me. It's a good problem to have, but now if you don't do this kind of earlier in your drawdown phase, you're going to find that it just becomes so large that it's, you know, almost as a challenge to spend the money. And like I said, I know that's a great problem to have.
00:08:19
Speaker
But for many in the community, I think that is what they are going to experience. And Michael Kitsis did a article about the 4% rule. And of course we're looking, we're all looking at the worst case scenario, but the problem is, or not the problem, but the reality is a majority of the people could have spent a significantly higher percentage because they're not going to face that bad sequence. Only a small percentage will end up in that bad sequence scenario.
00:08:49
Speaker
And for many of us that don't experience that at the outset, we're going to be chasing that snowball down the hill probably for the rest of our lives.
Kevin's Retirement Journey
00:08:57
Speaker
Yeah. Thanks, Mark. You've mentioned that, uh, you know, it has a transition from basically no spend or, you know, investing and then spending on what you need to, to survive to giving your, giving yourself permission to spend and ah um Kevin, you said that it's not a can spend, it's a required spend. You went from you retired at 43 and so you had to have gone through that transition from no spend to can spend to required spend. Can you talk about how you dealt with that?
00:09:32
Speaker
Yeah, and that we didn't share this, but I've been fired over 10 years, just hit the 10 year mark. Mark is at nine years, I believe, right around there. So we've been away. We call it retirement away from our careers. um We're not working for money.
00:09:49
Speaker
um I mean, I do teach OSHA lifelong learning courses and little things come in because people find successful people, not because we go out looking for funds. I call that my play check, which is separate from my fund bucket.
00:10:05
Speaker
But i I feel like um it you just have to get into this mindset. we My wife and I took it cautious from 43 to 50. We still traveled around the world and we did things, but we spent within our structure that we'd planned.
Financial Flexibility & Market Returns
00:10:23
Speaker
And at 50 was 2020. So we implemented a roaring twenties plan where we could spend more money every month freely for the decade.
00:10:33
Speaker
And that's the money we were setting aside in our mind for um this extra lifestyle. Then COVID hit two months later and month three of that. So we had two successful months and then almost two years of slowed down spending. And in those two years by 2022, the market returns had grown. And so we had eight years left in the roaring twenties. So we upped our amount based off of the new icing that was on our portfolios.
00:11:03
Speaker
And we've really had to push to spend on ah things and experience. And and BJ, he I met him at Economy, he talks about he loves things. He does do um activities, but it it all depends on what your interest is. And so um i so There was one example I had is we spend on ah cars and guitars, it seems, at this house. And that's our interests. My wife says the cars, but um they're they're not hugely expensive, but they're assets. And so we would have never done that while we were saving.
00:11:41
Speaker
we would have been very cautious in our first seven years where the sequence of return risk is high. And now it's just like, um, we call it the effort bucket and we just say, go for it. yeah Mark, you've allocated, at least based on what I could find, you've allocated 25% of your annual spending to your fund bucket for a four year period. How did you determine that amount and how do you plan to manage and replenish your fund bucket over time?
00:12:10
Speaker
So that went back to the original conversation I had with Kevin. We were trying to decide, I said, so how much do you put in this fund bucket? And he's like, well, what would be an amount that would exceed what you normally would spend on, you know, things out of the norm? And I was like, I don't know. If I got a 25% bonus on what I normally spend, that would be a big number.
00:12:32
Speaker
And i think we decided in this was probably like two or three o'clock in the morning so it's a little vague is exactly how it came about. um but I spend it's just a ballpark hundred thousand a year eighty thousand a year on average something like that.
00:12:47
Speaker
So I just said, well, let's just throw $25,000 in there times 400,000. There was more than that in excess between them, you know, only spending 2% and the good sequence. And it wouldn't move the needle. He's like, how much wood could you put in there without affecting your plan going forward? And I was like, um I could do that number and it would work.
00:13:09
Speaker
So that's what I did. It was just kind of a round number.
Life-Focused Spending
00:13:12
Speaker
Um, it was effectively a 25% bonus over what I kind of normally spend. And that's, that's how it came about. Did that come from like a checking account that you already had just that much money in. Did you take it from a brokerage and just, yeah, it was a logistic brokerage account. And, and I had recently sold a second home. So I had some ample liquidity to do this with.
00:13:36
Speaker
And it was just like, instead of throwing that back on the pile, as Carl and Mindy like to talk about, um, why not take some of that and throw it in this other account and live literally label it fund bucket. It was in a separate account and an online savings account. And it's there for that purpose. And that gave me permission to spend it.
00:13:58
Speaker
Kevin, do you recall this three o'clock in the morning conversation with Mark? Absolutely, because it changed my focus when on how we should be spending more and actually coming up with a number amount to to do that. We were spending a base of around $5,000 a month and ironically $2,000 of that's health insurance.
00:14:22
Speaker
500 or so is car, home, umbrella, all these other insurances. So half of our budget was insurance. And we added 20%, $1,000 a month, which was a huge amount of money to spend or try to spend on whatever. And um so my sometimes when you explain or discuss something with someone else, it makes more sense to you for an action. And I think that's what helped with Mark and I discussion. And the funny thing is we push each other frequently to use that fun bucket. When we went on the Fin Talks cruise with Amber Lee Grant and her crew, there were 60 of us. um We pretty much bought the most expensive cabin that was available. And it wasn't that much because it was four days, but ah we had people come hang out, visit us in
Financial vs. Retirement Planning
00:15:16
Speaker
our, in our little our big suite.
00:15:19
Speaker
It was pretty, it was just funny because that was just a little piece of the fun bucket to show that we could do that. And we didn't regret it, but we have great memories from that. The whole memory, using your assets to invest in something that provides memory dividends from the Daiwa Zero book, Bill Perkins, is a very true um strategy that you can keep these memories as long as you have your memory.
00:15:46
Speaker
And it's probably better than having a couple thousand dollars more in the bank. Yeah, I agree. And that's, you you and I have visited a number of times and that memory dividend, is that is that the right phrase? Yeah, invest your assets in experience and things that provide memory dividends is how I view it.
00:16:04
Speaker
Now we just got to figure out if you're there for the time that we, you and I visited, if those are positive memory dividends well or. but Let's talk about you. You mentioned that you're retired in the past and you were setting aside extra funds each month into an investment account. And yes how much of those set aside extra savings? What did I tell you to do with half of those?
00:16:27
Speaker
Kind of to my effort bucket. Yeah. Yeah. Which I have not done. And I also said to do that, do that now when you're youngest and healthiest, you're going to be in the future. And I i believe in that. And I can tell you, because I'm old, I'm fifth, I just turned 54 now and, and I have 10 years of this and it's not the same as when I was 43 or 44. I will say that your perspective on that, I do think about it often. And at some point I do hope that I can make that transition.
00:16:56
Speaker
I just haven't yet. So I know i I believe in you and I believe in the message that you're sending. and That's why we're talking about it right now. I think it's very important for people to hear. And maybe one day I will pull that trigger and then you and I will be going and getting a big cabin on a cruise somewhere.
00:17:10
Speaker
And the one thing I found is that having the money in that fund bucket has allowed me to spend on things that I wouldn't ordinarily do, but many of those things actually fit in my regular spending. But because it was over there in this account, so I could do, let's say a first class upgrade, for example, on a flight, which might be $300 that I wouldn't have normally done.
00:17:34
Speaker
And the reality is, it was fitting in my regular budget, but I wouldn't do it because it was excessive. But when you have this separate account that allows you to reimburse yourself for that expense, you'll find you you will do a lot more things than you would have normally done. And I don't even find myself reimbursing myself from that fun bucket. And we can talk about the mechanics of how it all works, but and it is fit within my normal spending anyway.
Impact of Market Returns on Spending
00:18:02
Speaker
And I have a point on that too, because we're still getting good market returns on the money that we set aside for decades. And there's the been more and more discussions in the Fi community about people who are saying their investments are earning more return than they do at work or did at work. And, uh, yesterday i I bought a little guitar amp on Craigslist and took me like three months to decide, should I really buy this used amp? And then I checked my, my balances. Cause I saw the, the markets have been going up for the past week and it was, I took out a drop.
00:18:42
Speaker
of a cup of addition to the fun bucket so it's. If you have saved and you've done well and you're intentional on your spending it's just not i'm not burning the money. But you you're doing you're probably doing well if you're listening to.
00:18:59
Speaker
the money communities and planning ahead, but it's all about living your life. And it turns out I really love what I bought yesterday and um hopefully that works
Who Qualifies for a Fun Bucket?
00:19:09
Speaker
out good. But it was a money decision that's inconsequential to our asset worth that I might have this item for 10 years or more.
00:19:19
Speaker
Kevin, if you were to have this conversation again with somebody, like what would they, they stumbled upon this podcast or they heard you talk or eavesdropped a conversation that you had at a campfire and they heard this term fund bucket and they said, that sounds good. I wonder if I qualify for a fund bucket. How would that conversation go with you to them? What are their qualifiers? What are their certain income amounts that you would either recommend it or not recommend it?
00:19:46
Speaker
That's a wonderful question because I've thought about this a lot in the terms of living your week. In retirement, you know you don't think about day-to-day. It kind of just goes along fast. you don't um You might not have kids at home, so you don't see school seasons. It's just like, boom, two, three months are gone, six months is gone. In Arizona,
00:20:12
Speaker
it It could be a whole year gone, it's always sunny outside, you can't tell the temperature unless you touch the window. um And so I've really liked the Playing With Fire movies idea of write down the 10 things that make you the most happy. If you could just do if you had minutes and you could do anything you want, what makes your soul happy? and i think people don't do that. I don't think people live their happiest parts of their lives. And I don't think, ah well, I think people wait till the weekend to do some of these things. On Saturdays, they do chores. Sunday, they do what they love. And then Sunday afternoon, they're thinking about work. Well, I tell people, why don't you do one of your 10 favorite things on Tuesday evening?
00:20:57
Speaker
Just kind cut out some time set aside some time go do something you love so that you're not just grinding through work so having. Basing it off of a life principle and not a fun bucket principle what things do you love at your soul in your core and how can.
00:21:18
Speaker
your resources that you saved put together or or earning now provide for those soul nourishing enjoyment and it doesn't have to do with dollar amounts it doesn't have to do with life stages if you like being outside or singing do that if you um want to hike, maybe you go to a nicer hiking place or take the time for that or buy better hiking gear or camping gear.
Tracking Fun Bucket Spending
00:21:47
Speaker
So in our examples, I get a guitar, my wife gets a car, a classic car. Those are different levels after probably 40, almost 40 years of driving three-year-old cars, buying three-year-old cars and driving them 10 years. It changes the scope.
00:22:05
Speaker
but it's different than just saying, okay, we started with 4% of our total investable assets or our total net worth 10 years ago and inflation's gone up. So now it's increased some, that makes no sense to me. And that's too much math. If I know I have in an example, a thousand or $10,000 in a fund bucket to use in a month or a year,
00:22:31
Speaker
then I know I want to use that. um If my fund bucket is $200 or $400 that I can use over the next few months, then I'll allocate that to something I love um rather than just walking through a store and just buying something that happens to be there.
00:22:49
Speaker
So what I'm hearing is to help shift with the mindset, just keep the process in place, like identified as a process and it is a process. It might be, you know, one person's process to manage their fund bucket might be a little bit different than the next person's process to manage their fund bucket.
00:23:04
Speaker
But just as they went through processes to save, to gain that net worth, just look at it as another process on the journey. not And if you do it like that, then it's say just a step-by-step, whatever that whatever that sequence of steps is a person defines for themselves for the fund bucket. But that way, it's still a process. It's not as a big ethereal, should I be spending money on this? Or am i should I feel guilty for spending money on that?
00:23:30
Speaker
you know, or, or, or it's just another process on the journey. Is that, is that a a way to like look at it as far as just that transition piece? Yeah, I would say so. So that was what was beneficial for me was actually number step one, identifying that I needed to spend more step to funding the fund bucket and putting it a name on it and saying, that's what it's for. And step three is, well, how do you spend it?
00:23:56
Speaker
And so what I do is I use credit cards for points and all that stuff. And I reimburse myself from the fund bucket for those items that are kind of out of the ordinary. And like I was saying, many of those things I haven't even had to reimburse myself for because I wasn't sure at the end of the month when I, with my normal quote paycheck from my investment account that I pay myself just for general living expenses.
00:24:20
Speaker
But what I do is I keep a spreadsheet of all of these items that I've decided to spend on whether I've already spent it or plan to spend it. So some of these trips we have coming up, I have trips planned all the way out for the next 18 months. And I know what they are going to cost because a lot of the things are, you know, I have to pay for it in bands or, you know, I know exactly what that amount is going to be. And I put it in there as a line item i in that fund bucket. And I know where I stand as to how much is left.
00:24:50
Speaker
and where i'm going to reimburse myself but let's say it's a ten thousand dollars cruise and i find well i can read you know refund myself or ah $10,000, but if I only need eight of it because it's gonna fit within, I'll just get myself eight and allow that fun bucket to you know have access in it. And then you know at some point, it's gonna be empty, and then I'll need to replenish it. and I've already thought about where is that gonna come from and how am I going to replenish it? And what I've found is, so this was what, 2021? We're in 2024, so it's about three years into it. But I haven't spent at this speed
00:25:31
Speaker
um or reimburse myself from this at the speed that I initially thought I would.
Community & Memorable Experiences
00:25:36
Speaker
So I'm a little bit ahead. I'm still going to reimburse myself or replenish that. At the end of this year, I am selling a house again. So I'm going to use some of that to really up the fun bucket quite a bit.
00:25:48
Speaker
First off, congratulations. I know you got a lot of moving parts in your life right now. You're very busy. You started the podcast. ah Your daughter's still in the picture. I think you're staying. I think you, I'm not sure exactly all your, and you don't have to share it here right now, but I know you got a lot going on and it's cool to watch from a distance and how you're, when Kevin was talking, Kevin just came to visit me not too long ago. And he was telling me about all of your adventures and how busy you're going to be. and And I was just like, wow, he's he's out there doing it, living it. So good on you. And and it's great to see proof of concept that this actually works.
00:26:18
Speaker
I think part of that's living life, finding out in this chapter, this phase, this season, what is bringing you enjoyment and Mark's finding community from um the five community the rock retirement club community the long long community he's uprooting his life to change some structure to bring in the community. And i did want to say to mark so just looking at this calendar year the fun bucket freedom to spend requirement to spend strategy is going backwards because it's the returns are good and so
00:27:02
Speaker
um it It made me think about the when you have an income and you get a raise, I could maybe consider this year's market returns if you were to cash in or at least sell and take the profits that that's like a raise. And the idea is save some of that and spend some of that. And so, David, that's what I was thinking about with your extra income. Save some, you know, it's the whole marks, whole make some save and invest, live on the rest. Well,
00:27:30
Speaker
live and spend freely on the rest is where we're at. And if Mark and I had the same 2021 conversation about we need to take some icing off the cake, where there's more icing now and there's less years to eat that cake.
Secured Income & Active Years
00:27:48
Speaker
That's nu that's another part of the equation.
00:27:50
Speaker
Yeah, I think that sounds good and it's it's everybody's reality right now. But what would you say to somebody who's worried about starting a fund bucket and jeopardizing their retirement? like Is there like a a limit? like Do not go beyond this, just a general rule of thumb? um For me, I just... If you can create a plan for yourself, obviously the first step is to make sure you're not going to run out of money for the essentials. And that's where, you know, Kevin was talking about the retirement and IRA show and they kind of come out retirement in a totally different way.
00:28:25
Speaker
you know, having secure lifetime income to cover your basis. um And in that case, it might be for some people social security or a pension or a portfolio of a certain size that will definitely cover all of your base needs.
00:28:42
Speaker
And then you start to think about ah how much excess is there. Of course, you're going to have contingencies and so forth built in as well on top of that. and But even after all of those contingencies, how much excess is there? And that's literally your quote, fun number or could be your fun bucket. And then thinking about bringing that forward.
00:29:04
Speaker
So instead of spending that over a linear timeframe for the rest of your life, thinking about how do I bring some of that spending forward into the timeframe where I can truly enjoy it. And I think about it from like my mother's um perspective, she's going on, we're going on a trip to the Mediterranean on Friday and my daughter's going, my mother's going, Steven and Becky are going hectic. And another couple from the rock retirement club are going,
00:29:31
Speaker
And I think about it from my mom's perspective, she has created this portfolio. She was, you know, a saver as well. And she is now 80, 80, I forget exactly, but in her eighties. And she kind of regretted not spending some of this, these assets that she's accumulated over the years earlier.
00:29:53
Speaker
And here I am spending it earlier, bringing my daughter with me and creating those memory dividends. And I'm seeing how if you kind of delay this to a later point, maybe you're not going to be able to spend it all because you're not going to be in the, in the best health, she's in great health, but you know, and somebody in their age may not be able to do this stuff.
00:30:14
Speaker
So really think about how do you pull it forward without jeopardizing your long-term plan.
Health & Inheritance Considerations
00:30:19
Speaker
So that's really the key kind of balancing mechanism in this whole thought process. Yeah, I think we, we assume that we're always going to be in good health. We do hear, that's a common theme for people who are older, not, not, not your ages, but even older, you know, like way older, you're a very young gentleman.
00:30:38
Speaker
But it is something, those are the factors to consider because we don't we kind of see where see life through the bubble that we're in right now and then all those little factors that we think maybe matter more than they should or maybe not identify some of those things that should matter and we just don't see it. So I'm glad that you brought that up. Mark, on you have a blog post about this topic, the Fun Bucket. You mentioned in that post, if you don't spend it,
00:31:03
Speaker
your inheritors gladly will. How has that influenced your spending habits with your fund bucket? Well, it's funny, you know, I talked to my daughter about that and I said, I hope you don't feel, you know, put off by that comment. And she's like, no, we're doing this stuff together now. So in fact, we're flying first class to, well, not all the way across the ocean, but we have to make a stop in Newark, New Jersey to pick up my mom effectively. And we're flying, I called her and I was like, And you know, this is a long day. Should we just do first class? She's like, absolutely. Let's do it. But she's not sitting there saying, dad, you're spending my inheritance. You know, she's saying, let's do this together.
00:31:41
Speaker
So, but however, if I was super frugal and and not, you know, flying first class for myself and it went to her, I think she's pretty well versed in all this, but let's say if it went to her and then went to the next generation, that secondary transfer of wealth is where you really see it. And I see it all the time where those people just spend like crazy. They didn't earn it. They didn't have to sacrifice for it. And they're just out there doing whatever. So it's usually not necessarily in that first generation transfer, but in that second generation transfer, man, those people just blow it. So I look at it and say, Hey, you've accumulated it. You should do it. You should spend it.
00:32:23
Speaker
Certainly if you want to leave money to the next generation, that's great, but teach them well. Um, but if you just hoard, hoard, hoard and pass away with this big pile, trust me, whoever you leave it to is certainly going to spend it without any
Family & Shared Experiences
00:32:36
Speaker
qualms. Yeah. So I think it's, it's great that I think we all respect the accumulation and the saving and the investing, but the way you just said that it's also like respect the spending as well. And thinking multi-generationally,
00:32:49
Speaker
Yeah, im I'm sure the statistics hold up to that. I mean, we we hear stories in them, but I'm sure there are statistics that support what you just said, how when when generational wealth is lost over time ah by the third generation. So yeah, I like the idea of of respect to spending and who better to respect the spending aspect of this than the person who built it. and And that's how you're kind of looking at it right now. And your daughter,
00:33:12
Speaker
I really, I have a 21 year old daughter and a 10 year old son. And so I thank you for bringing that her perspective into this conversation. Because I also think like that too. I mean, are my kids gonna like, I mean, I've got it. Why not just give it to them? Then they maybe attach some kind of value. Do I care about them on a dollar amount? I don't think they're like that. But it is something I think about. And probably many people do think about that link. But in your case, your daughter's saying that she's actually looking at it as you're spending this money with her and it's a joint thing. So I think that's a very beautiful thing your daughter shared with you. Probably releases your stress at least a tad. Yes, it does. And creating these memory dividends with her. So we did an Alaska trip. Last year it was actually a rock retirement club trip that she went on with me.
00:34:01
Speaker
We're doing this Mediterranean one next year. We're going to the Fin Talk Scotland trip and she's coming on that. So we're just creating these great, you know, memories together. And she realizes, and I realize how valuable that is because when I list my 10 things, you know, family and community are at the top. Um, so that is where I am devoting, you know, the spending to are those important things to me.
00:34:29
Speaker
Kevin, what are the craziest, most outrageous things you think that you spent your fun bucket money on? um Before I get to that, I did want to make one comment is I push Mark and he pushes me and we have some other friends that we push to use the fun bucket, to create a fun bucket. And so i I do tell Mark, my wife and I don't have kids, so I do tell Mark, if you don't spend it, your future son-in-law will And so ah he knows big that he ah Katie's excellent. And so they're they're living a good life. But because we don't have kids, I created a blog post that said, i what we don't spend is going to go to the hogs. And the hogs are the heirs, the organizations, and the government, which are you know nieces and nephews, charities, and taxes. so
00:35:19
Speaker
I don't really want to let the money go that way. um i do I'm very safe, very cautious, very risk averse in normal life things. So ah I've structured that and have the these buffers that are supposed to go out.
Balancing Enjoyment with Planning
00:35:34
Speaker
Well, now it's only 40 something years, but it used to be 50 years from when I retired and to get to the 90s.
00:35:41
Speaker
i I don't think we've spent lavishly on things. Like I still have a hard time going first class. Kathy and I went to Florida while we met in Florida a couple of months ago after economy conference and we were flying home together and I booked her first class and I booked premium extended economy right behind her like two rows back. And it took me until three days before the flight to upgrade to first class because it was only $96 one way. I'm like, this is a deal.
00:36:12
Speaker
But when i booked her ticket i made sure the seat next to her was free so it's obnoxious to think i wouldn't spend two hundred forty nine dollars to upgrade to first class for a four and a half hour flight but ninety six dollars or whatever worked for me. um i I believe in the happy wife happy life home works good kathy sacrifice spending for.
00:36:33
Speaker
decades with me once we've we've been together 30 years or so. And um now it's a good time to spend that. ah We have a beach home that we bought in 2012 at the bottom of the market, so we spend on that. um It's not that expensive, but that's a use asset that will in the future be sold at some unknown dollar amount that will flow back into our retirement plan. Oh, that's one thing I should mention. Mark and I do have discussions about the difference of a retirement plan versus a financial plan, a retirement planner versus a financial planner.
00:37:15
Speaker
Financial natural planners tend to accumulate assets, set it aside, invest it, let it grow, don't touch it. ah You have a defined date of when you, a target date of when you want to retire. So you know you have 18 years or 12 years to save before retirement. Your retirement plan takes the assets you have around when you retire and leave your career and quit bringing an income.
00:37:43
Speaker
and have to figure out how that money is going to get you through an end of plan and end of life with an unknown date and of course unknown circumstances and if you are in a couple unknown timings for each of you.
00:38:01
Speaker
ah If you're in a couple or if you decide you hate the other person when you're retired, um we see that from different life strategies, people passing. um And the other one I talk about is what if you want to live this great life and you have a spouse that doesn't want to leave the couch?
00:38:19
Speaker
And so you have this sluggish spouse who, and you're on different paths and different spending needs. And there's so many variables in the retirement planning piece that it's very, very different from financial planning. So ah I think that's a key thing. And this fund bucket is part of all life stages of how to enjoy the assets that you've set aside or that you have coming in intentionally.
00:38:46
Speaker
Would you recommend someone do this fund bucket before they hit their number? Yes, yes. I believe if you are saving $300 a month, ah ah maybe you set aside $50 for that month to do something you love. The goal is, I think, to be intentional of that money use. That's where this community is amazing. You have people of all ages, all backgrounds, every and they're all thinking through the use of their hard-earned assets, and
Creating a Fun Bucket Account
00:39:22
Speaker
that's the key. i I have read part of your money or your life, and um the the the overall concept of you're giving away time to get
00:39:32
Speaker
resources What are you going to do with those resources? It makes perfect sense. That's from my observation. So yeah, it starts on Tuesday. Today's Tuesday. What are your plans for your fine bucket going forward, Kevin?
00:39:43
Speaker
Well, it's funny because we talk about the fun bucket, but I've never actually created an account at my brokerage until three months ago. Three months ago, I created an account in my brokerage and you can custom name it. And ours says F it bucket right there on the brokerage account. So if they were to look at it, that's what they would see. And I, like Mark, we had sold a property a few years ago and I had that in a couple of different treasuries and I moved those into that Fund bucket account and so it actually has the dollars sitting in it and the treasure is mature the thirty first of this month and then next august next year. And that's enough to find the large fund bucket through the roaring twenties this whole decade.
00:40:36
Speaker
That's not our entire fun bucket. That's just a portion that I've carved off, probably 25% of the set aside that I have or the amount of the 25% of the amount not assigned to base great life, aging assistance, buffer.
00:40:54
Speaker
that stuff. So even funded, it's a low amount. Oh, and in the retirement planner, there's a saying, you have your go-go years, your slow-go years, your no-go years, and that's generally 65 to 75, 75 to 85, 85 and up are the three phases. Well, because I'm under 65, Kathy and I, we call this our mojo years.
00:41:19
Speaker
And so, ah Jim and Chris in the retirement IRA show talk about targeting your fun number, your fun bucket to be 65% in your go-go years, maybe 25% in your slow go when you can still go to plays, but you're not going to travel around the world.
00:41:38
Speaker
And then still keep 10% in your no go for conveniences like eating out, maybe taking so having someone take you to to a play or the movies.
Liquidity & Future Plans
00:41:50
Speaker
um So you can still take the fun bucket and allocate it in those phases. And I give this a lot of thought all the time. I talk to all kinds of people about this because If you don't think about it, you're not going to do anything about it. And I would add to that that, you know, having, for me, at least having the fund bucket in liquid assets. So for me, it's in an online savings account. Um, Kevin mentioned treasuries, you know, short-term treasuries, but not investing it in equities, for example, and saying, Oh, well, the market's down. So I can't spend this fun money. So for me, it's literally cash ready to spend. And that is really important.
00:42:30
Speaker
And then the other thing is you know talking about the ability to spend from that um i'm going to be in bali again this year at the five freedom retreat that he's doing. And we are on a cruise steven and beck and i am this past spring and they were like well what other places says do you want to go and i said well new zealand is on my list.
00:42:50
Speaker
And they were like, well, let's do it this year. And I was like, well, I was actually thinking more like 2026. And they was like, well, Steven was like, I really want to do it now. I want to kind of move that forward for me. And I was like, okay, we'll see what you come up with. And they came up with a 16 day cruise in New Zealand in December, I think it was. And I was like, well, I'm going to be in Bali until the end of November. What am I going to do in between? And they said,
00:43:14
Speaker
Well, you had also mentioned Australia as being on your bucket list. You know, there's another cruise right on the front end of that on the same ship for another 16 days. And we could just do that. And then you could come right from Bali, do Australia, do New Zealand. And then we mentioned it to our group, the Slackers, which Kevin is in. And then Kevin was like, I'm in. And I was like, well, don't you want to ask Kathy? And he's like, oh, I'm sure she'll be good for it.
00:43:39
Speaker
I said within 30 seconds I'm in, I would figure out how to make it work. The ability to do that, to do something intentional, and it's going to be, how many? Seven of us? Seven of those? Yeah, because another couple jumped on too.
00:43:56
Speaker
Mark, looking i mean if you can't even look ahead past your you know crazy next six to eight year, Mark, what are some big things that you're going to use your fund bucket or that you've got this idea you know in a few years that you want to explore with your fund bucket funds? Well, for me, it really is just continuous um travel with friends or doing things with friends. so when somebody And they tend to be mostly in the FOD community because everyone comes up with these great ideas.
00:44:26
Speaker
um and Kristin nap is talking about doing some land travel adventures in europe and i had her on a podcast and we we're talking about it and she lit up when she was saying i wanna plan these events and i was like you should do it.
00:44:42
Speaker
I was like, I'll go, no question. So I just see continual events like this and a lot of it revolves around travel, but more importantly, it revolves around community. And I just see that continuing. For me, it's not things. In fact, I've been downsizing and purging. For me, it's all about experiences. So I have no idea what those experiences will be, but they will definitely be with friends and community.
Deliberate Spending & Planning Tools
00:45:07
Speaker
Is there anything else before we close out this episode that you'd like to share, Kevin or Mark?
00:45:13
Speaker
I'm, ah we share a lot. And so I'm wondering what do you think about Fun Bucket? ah can you Do you think you could start small? It's it's kind of like,
00:45:25
Speaker
How do you carve out money for a fun bucket is exactly the same as you carve muscles, right? You start with a small amount of weight, you put in the reps, you work your way up over time, you see results, hopefully. um Can you commit to setting us creating creating a separate account that has to be used by the end of this year? I mean, that gives you plenty of time.
00:45:49
Speaker
I love how you're putting me on the spot here. yeah i mean it's And because not but because you're doing that, I will say yes. and do I how you create an account and think I can manage that part, but i will I will start another account and funnel money that way and we'll see it well we'll think of it as an experiment and how I feel about doing it. good Good. And I think that's one point I didn't mention is one thing Mark and I and our friends have talked about do well talked about to start this is We took our retirement calculators and we subtracted a hundred thousand dollars or whatever off the top just took the brokerage account balances because the it gets crazy if there's all deferred accounts or even the roth accounts which are
00:46:33
Speaker
Everyone's hold those forever, so someone else can spend those. But if you have a brokerage account, just go to your calculators and subtract 10,000 or 100,000 and then rerun your Monte Carlo and see what happens. If that money is not calculated in the retirement plan,
00:46:49
Speaker
it's It's in a bucket off to the side, rerun your numbers and see what it comes out with the results, the Monte Carlo comes out. That's what we did. So we didn't just say pick a number, we subtracted it from the brokerage like it didn't exist. Like we took that icing off the cake, just removed it and then recalculated. And so this is all done with huge intent. So I did want to say that it was a different way to recalculate with the fund bucket already spent or assigned for required spending. I mean, that's what I did. i Once I moved it into that fund bucket, it's as if it doesn't exist as far as retirement planning goes. It's as if it was already spent, it's gone. Although it's not, it's sitting there ready to spend, but it is has no factor on the overall retirement plan at all. And that is what gave me the confidence to fund it.
00:47:41
Speaker
um And I will redo that when I refill it. And I've already run those numbers and I'm fine. So there's no problem in refilling it.
Tax Implications & Asset Management
00:47:49
Speaker
So two things I want to bring up based on that. The first thing, especially depending on what phase you're in, you're going to somebody's going to say, I'm withdrawing from a taxable account or a taxable brokerage. That's going to be a taxable event. just not You don't care about that? Well, for me, it wasn't because it was sitting in cash ready. So I was just moving it from my taxable brokerage into another account. Selling assets in retirement in general, to fund spending needs, whether it's your base grade life, minimum dignity floor, fun, ah aging assistance for the month if you have health care, home care. Selling assets should not be done at the time you need them.
00:48:30
Speaker
they should probably be done ahead of time, set aside. I did make mistakes helping my mom with that, where I only had, you know, three months of money set aside. And um it wasn't so much the market downturns that made it hard to sell some of the equities. It was how do you deal with the taxes of ah qualified distributions, which are ordinary income or capital gains distributions, which are more preferred versus If it's going to be left to a legacy from my mom to the next generation, what are the inheritance tax rates? It becomes a huge calculation. That's why I said I had ah try a one year and a two year
00:49:13
Speaker
short-term treasuries and market cash. So it's not selling. We filled the bucket, just like if you have a three bucket um portfolio strategy of future, you know, first three years of retirement or the current three years.
00:49:29
Speaker
three years to seven years and then seven plus or whatever it is for people five zero to five five to ten selling assets in retirement or anytime is a real pain and it's gonna get harder as you get older and as they grow and as you shrink the window of when they're needed so that's a great question.
00:49:49
Speaker
And one thing that I could think about if somebody didn't have money in a cash equivalent or or T-bills or bonds or whatever, and they maybe maybe tax loss... harvest yeah you You guys are smarter than me on this, but maybe tax loss harvesting is a way to do it. What of their app assets and a brokerage potentially lost value that year, and that's what they sell maybe to fund it? Would that be a decent approach?
00:50:11
Speaker
Yeah, that's certainly not an um and option. um What I do also is I've turned off all the reinvestment of dividends and capital gains and all of my accounts ah in the distribution phase so that that money is always coming into the cash kind of accounts. And that helps offset a lot of my spending to begin with.
00:50:29
Speaker
And then I also have a very long cash runway. My cash runway is closer to almost 10 years. Um, and that's just where I feel comfortable. Um, and the portfolio is of a size that that's not going to affect the overall return of the portfolio.
Conclusion & Fun Bucket Management
00:50:46
Speaker
And so for me, it's, it's very easy to see that cash spigot coming, you know, on every quarter, every month with interest and dividends and so forth.
00:50:58
Speaker
um and I would say that you know as you get closer to retirement, probably somewhere in the neighborhood of five years pre-retirement, you need to start thinking about how am I going to fund my lifestyle? like I have not had any income um during my retirement years at all, zero. so I'm in living entirely off of this portfolio.
00:51:19
Speaker
So um that's why I like the long cash runway. I have the income coming in from dividends and capital gains not being reinvested. So there's this you know constant water spigot that's refilling these buckets um over time. So that's that is a mind shift from the accumulation years that I think a lot of people aren't aware of until they get into this phase.
00:51:44
Speaker
I think it's like you say, forget about money, live the life you love in your soul with intention. Well, thank you gentlemen very much for sharing your insights and your experiences and your thoughts about creating, managing, and living with the fun bucket. And thank you all for watching and listening.