When retirement comes, everyone wants to feel secure that they've made the best financial investments. Doing so means that you can enjoy your retirement to the fullest. Fortunately, The Bucket Plan® Philosophy that we implement exists.
It challenges an old-fashioned way of investing for retirement. People stowed a small pile of money away in the bank and used a more significant amount of money for investments. Then, they took a leap of faith, believing this money would last for a lifetime and garner generational wealth.
However, market, interest rate, and sequence of returns risks make it vital to take a structured and strategic approach to bucketing assets for today's financial threats and challenges. Let us help you achieve retirement security by explaining the retirement bucket strategy and how it will benefit you.
The Retirement Bucket Strategy Defined
Most people invest their money in the stock market, 401ks, and IRAs because they want more than enough money to fund their retirement years. However, many people don't know the best ways to withdraw money from their accounts for retirement. The retirement bucket strategy is an effective withdrawal strategy that clients can use to their advantage.
It separates your sources of income into three "buckets" or segments. Each bucket has an established purpose based on when you want to use the money (short-term, intermediate, and long-term). The goal is to ensure you have access to cash in the short term so you can feel less stressed about stock market fluctuations.
When there is a down market, you shouldn't have to sell your investments to fund your annual withdrawals. You'll be able to "refill your buckets" by interest income, dividends, and the performance of your investments.
How This Works
The bucket strategy for retirement works best when clients follow specific plans for each bucket. JL Smith's financial advisors can show you how to manage each bucket and how much money to add to each bucket.
The Immediate Bucket
Cash and other liquid investments should go in the short-term bucket. These investments might include short-duration CDs, U.S. T-bills, high-yield savings accounts, or other similar assets.
By "liquid investments," we mean assets that you can convert into cash without difficulty. It might seem intriguing to earn interest on this money. However, the main goal of The Bucket Plan® Philosophy is to reduce risk, ensuring that this money is there whenever you need it.
Ideally, cash that goes into the immediate bucket covers two years of expenses and doesn't exceed five years. For example, if you plan on spending $50,000 a year in retirement, the goal would be to reach $100,000 in this bucket. If you plan on spending $50,000 a year in retirement and want to cover expenses for five years, the goal would be to reach $250,000 in the bucket.
The Intermediate Bucket
The intermediate bucket takes care of your retirement after the first two years and up to the first ten years. This money will continue to grow, keep pace with inflation, and won't involve investing in high-risk assets.
Common intermediate assets include longer-maturity bonds and CDs, preferred stocks, convertible bonds, growth and income funds, utility stocks, and REITs. If you're unsure of what investments you'd prefer to go into this bucket, we can help you determine which ones will meet your investing goals.
The Long-Term Bucket
The long-term bucket allows you to grow your nest eggs and refill your short-term and immediate buckets. Clients should utilize this bucket for riskier investments that would be too volatile in the short term yet have growth potential for ten years or more.
Our team can help clients have a diversified investment portfolio of stocks and related assets in this bucket. We can also help allocate them across domestic and international investments ranging from small to large-cap stocks.
The Advantages of a Bucket Retirement Plan
A bucket retirement plan helps clients manage what financial experts call the "money cycle."
During our lifetimes, we accumulate, preserve, and distribute money. However, managing how we gather, keep, and allocate our money can be challenging without a plan tailored to our goals and accounting for market changes.
The Bucket Plan® philosophy helps clients segment money based on their:
- Investment time horizon: (the period a person expects to hold an investment until they need the money back
- Volatility tolerance: (the chance that the value of an investment could be negatively impacted by speculative market behavior, market crashes, or other world events)
- Income needs
The Bucket Plan® philosophy not only prepares for market volatility but also offers simplicity. It's easier to manage savings or investments when you split them into smaller portfolios versus trying to control them from one large account.
In short, a retirement bucket strategy allows you to keep taking care of current expenses while leaving the rest to grow.
Why is Financial Planning for Retirement Critically Important?
The idea of financial planning for your retirement might not even seem necessary. You might check your bank account and feel financially secure. You also might not doubt that your sunset years will be fruitful.
After all, many retirement planning books, websites, and seminars (like the ones we host) exist. However, one day you might want to (and should) bounce your grand ideas off a financial professional that can help you reach and exceed your goals.
According to CNBC, 75% of Americans are "winging it when it comes to their financial future." Only 17% of the people CNBC surveyed stated that they use a financial advisor.
Also, a ten-year study from Transamerica Center for Retirement Studies showed that 4 in 10 workers who shared an estimate of their retirement savings guessed the amount they needed.
While you might have cushiony savings, hiring a financial advisor will remove all guesswork. Also, you might not have the time to study how the market moves or changes. Our financial advisors have the expertise to help you navigate through this and make your life much easier.
What is the First Step in Retirement Planning?
The first step is to schedule a consultation with a financial planning company. JL Smith's team of financial planning experts can help you avoid unnecessarily risky investment pitfalls, such as impulsively selling stocks during the first sign of a market correction.
Furthermore, we'll save you a lot of time and frustration while empowering you to take charge of your financial future and not leave it up to chance.