Broker Check

Protection Against Big Market Corrections

May 21, 2024

I recently completed a two-day training course on retirement cash flow planning. This training reinforced the need to help our clients create a financial plan that would last their retirement years. Many retirees come to our office with a common fear: running out of money. Because we don't know when we will take our last breath, our money must last years and possibly decades. To help ease this anxiety for our clients, we strive to educate them on The Bucket Plan.

For those unfamiliar with The Bucket Plan, it divides your investments into three buckets: Now, Soon, and Later. The Now bucket is for the money you need over twelve months. The Soon bucket is for the money you need over the next decade. And finally, there is the Later bucket. This is money that won't be used for at least ten years.

Of the three buckets in The Bucket Plan, the Soon bucket is the linchpin of your financial security. This bucket strategically moves a portion of your invested assets into more stable investments, providing a buffer against market volatility. The amount of money needed in the Soon bucket varies with each client and their reliance on investments for income, but its role in protecting your financial future is undeniable.

The logical question is, why are we having clients give up growth potential by using stable investments? The rationale is that there is less time to make mistakes or experience major volatility. The biggest mistake clients make is not having a Soon bucket. When the market has a big correction, as it always does, this forces investors to sell investments for income while they are down. You can never make that money back, and you could deplete your savings much faster as a result.

Let's take a look at a real-life scenario. In 2022, the S&P 500 was down 18%. Despite this, retirees still needed to withdraw money for income. Now, imagine if these retirees had a Soon bucket with ten years of income set aside in stable investments. These stock losses would not have been realized, and they could have tapped into the fixed-income portion of their portfolio for income, allowing time for stocks to recover. As we saw in 2023, the S&P 500 surged back with an annualized return of 26%. This is the power of the Soon bucket in action, protecting your investments and ensuring your financial security.

At Harford Financial Group, we pride ourselves on tailoring retirement cash flow plans for our clients. During our annual strategy meetings, we focus on planning for what is to come rather than what has already occurred. This allows us to position our clients' investments to meet their income needs and continue to minimize their fear of running out of money by building a Soon bucket in their portfolio.