Building a retirement plan to navigate the many risks you will face in Retirement can seem like a daunting and overwhelming task. Dealing with market volatility, taxes, inflation and increasing life expectancy can create massive challenges for your retirement plan. If you invest too safely, you run the risk of losing purchasing power due to inflation; Conversely, if you invest too aggressively, it can expose you to significant financial loss and Sequence of Returns risk. Both scenarios can put you on the fast track to running out of money prematurely in Retirement. To address these challenges, The Bucket Plan Best Interest Process can be applied to segment your assets in the order they are needed, taking into account Retirement Income needs, time horizon and tax implications.
The Bucket Plan® Best Interest Process, is a three-bucket approach to segment money based on purpose and time horizon.
Our approach will help mitigate the greatest dangers of retirement today; market risk, taxation and Sequence of Returns risk. For retirees, The Bucket Plan helps to structure assets to provide reliable income throughout retirement and ensure all the assets pass on to the intended beneficiaries in the most tax-efficient manner.
For younger clients, having a Bucket Plan will help navigate the challenges of saving for short-, intermediate- and long-term financial goals while ensuring proper tax diversification. You will also have a portion of money set aside to take advantage of any opportunities that may arise.
Bucket 1: The “Now” Bucket is designed to be your safe and secure money which includes your "magic number" as well as living expenses in the first year or two of your retirement. The now bucket will also provide liquidity for larger planned expenses, such as a new car, home repairs or any other “big ticket” items. In the past your "Now" bucket was strictly an emergency fund, today it is much more.
Bucket 2: The “Soon “Bucket is the preservation bucket. Because this money may be needed sooner rather than later (years 2-11 of your plan), it is invested for growth—but conservatively. This may provide income in the first phase of your retirement while also acting as an inflation hedge to help combat the rising cost of living. By investing conservatively, a client avoids the risk of being forced to sell during a large downward swing, ultimately liquidating a bigger piece of their overall portfolio for the same dollar amount. The “Soon” Bucket is created to reduce your exposure to extreme market fluctuations, thereby eliminating Sequence of Returns risk.
Bucket 3: The “Later” Bucket is designed for long-term growth and legacy planning. Having bought a time horizon with the first two buckets, a client can choose to invest in vehicles with a longer time commitment and greater growth potential with more confidence. In retirement, this bucket can play a critical role in legacy planning too, particularly to provide income for a surviving spouse.