Many clients have likely heard of The Bucket Plan®, a core part of our retirement income philosophy. The Bucket Plan is a strategic approach to managing your finances, dividing your assets into three buckets based on your financial goals and timeframes. It's about securing your present needs while investing for future growth.
Let's start with bucket 1—the Now bucket. This bucket is designed to cover expenses in the first year or two of retirement. It is loaded with income you will need in the first 12 months of retirement, any major planned expenses, and your emergency fund at the bank. This money is typically held in cash. The returns are minimal, but the purpose of this bucket is stability, not growth.
We are moving on to bucket 2 – the Soon bucket. This is the money earmarked for years 2-10 in retirement. Since this is still a relatively short timeframe, bucket money should soon be invested for growth, but it should be conservative growth. By opting for conservative investments, we address two of the biggest risks in retirement: inflation and sequence of returns risk. The conservative growth helps offset the rising costs of gas, groceries, and other daily living expenses, providing a baseline of income and an inflation hedge where we can draw a little more as the years go on and things get more expensive. By conservatively investing, you avoid taking out money at a market low or sequence of returns risk, as this account should not be exposed to extreme market fluctuations.
Lastly, we come to bucket 3 – the Later bucket. Here, we prioritize long-term growth and legacy planning. With the confidence gained from securing the first two buckets, we can now invest in higher-growth opportunities and longer-term commitments, ensuring financial stability for the years ahead.
One common misconception is that legacy planning solely involves leaving assets for heirs. However, legacy planning is most important for the surviving spouse. Transitioning from a joint to a single tax bracket can significantly impact taxes and income. By proactively structuring assets, we mitigate these risks, providing security for the surviving spouse during a challenging time.
In conclusion, The Bucket Plan® offers a holistic planning approach to meeting your immediate, short—and long-term goals.
Please get in touch with us to learn more about creating your own bucket plan.