A couple who retired early with $1.5 million despite never earning 6 figures uses a ‘bucket’ system for their money so they’ll never run out

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A 59-year-old retiree who was featured on the blog ESI Money said he and his wife left the working world two years ago with more than $1.5 million saved and invested.
The retiree said they decided to separate their money into three proverbial "buckets" to make sure they don’t outlive their savings.
The first bucket is cash to tide them over until they begin claiming Social Security; the second bucket is their after-tax investments; the third bucket holds long-term growth IRAs.
They have planned to draw on the money in that order — cash first, then after-tax investments, and lastly, retirement savings accounts.
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For many early retirees, the biggest challenge is finding a way to keep savings intact through decades of spending and very little earning.

One couple who retired early devised a plan to separate their money into three proverbial "buckets" so they’d never run out, the 59-year-old husband recently shared on the personal-finance blog ESI Money. The man and his wife, 62, never earned six-figure salaries individually, but managed to retire two years ago with just over $1.5 million in cash and investments. They promptly sold their house in Florida and moved into their second home in the rural Smokey Mountains, he said.

"My target number for retirement was $1,500,000. I figured a 30-year retirement needing $50,000 from our investments per year," said the retiree, who owned and operated a residential cleaning service. "The balance of our income would then come from Social Security, about $34,000 for the two of us." The couple lived on one salary for several years and saved at least $35,000 annually to meet their goal, he said.

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"Our modest lifestyle plays a huge role in our finances. We never kept up with the Joneses! Can’t stress that enough," the retiree said. Still, the couple needed to find a way to navigate the "bridge period," or the time between leaving work and having access to Social Security benefits and retirement accounts without penalty. They needed enough cash on hand and didn’t want to spend down their investments too quickly.

"I figured we needed three buckets of money for retirement," the retiree said. "The first bucket would be a bridge from day one of retirement until we were eligible for Social Security. It would also be a cash account to hold our monthly/yearly expense allowance." They retired with about $274,162 in a cash savings account, he said.

"The second bucket would replenish bucket one so that we always have 2-3 years worth of living expenses in cash," he said. This bucket includes their after-tax investment account, which had a balance of $207,490 invested in stocks and mutual funds at retirement. They also held nearly $130,000 in inflation-protected savings bonds and municipal bonds.

"As we were saving over the years I always made it a point to beef up our after-tax accounts," the retiree said. "I didn’t want all of our money tied up until we were 59.5. I didn’t have any specific plans in mind for that money, I just wanted to have it available. I am really glad I did that."

Finally, he said, "The third bucket is for long-term growth and will ultimately be used to refill buckets one and two. Our IRA accounts are bucket three." When they retired two years ago, the couple had about $686,000 across a SEP IRA, traditional IRAs, and Roth IRAs.

Using money from their cash account and after-tax investments, the couple spent $55,630 last year — less than they expected, he said. They’ve dipped into one of the IRAs, the retiree said, but they’re delaying taking Social Security for now.

"Don’t concentrate on how much money you MAKE. Concentrate on how much money you SPEND!" the man advised aspiring early retirees. "Be flexible. Planning is essential, but life is unpredictable. Always have a ‘Plan B.’"

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