fbpx

INVESTMENT PLANNING WEST CHESTER OH

Plan, Prepare & Review

Let’s start at the 30,000 ft. level and provide a very broad overview of the three steps we’ll use throughout the process. So this is truly foundational.

Here are the three, simple steps I want you to commit to memory:   Plan, Prepare, and Review. Let’s keep our focus on the big picture and the underlying philosophy of these three steps by adding a simple phrase to each one:

Step 1: Plan – for your preferred future
Step 2: Prepare – for what might go wrong
Step 3: Review – and adjust on a regular basis

Step 1: Plan – for your preferred future

My wife, Diane, always says it best: She prays daily for every member of our family to have a long, healthy life, and a quick, painless death. That’s what we all want, right? That’s what makes step one so much fun. We’re preparing for our preferred future.

Step 2: Prepare – for what might go wrong

This is where we consider what would happen if we experience a premature death or disability, or a stock market crash, or major changes in tax rates or inflation – things like that. Some of these issues apply to everyone. And some may be very unique to your own personal situation. It does us no good to have an exceptional plan for our preferred future, but then we completely ignore what might happen to derail that plan. We need to know that, if life throws us a curve, our entire plan won’t implode.

Step 3: Review – and adjust on a regular basis
Of course, we don’t want to create a plan once and then just forget it. We always tell our clients that the investment planning process itself is really just the beginning. Any good plan should be highly flexible and should be reviewed and adjusted regularly to ensure it continues to be as effective as possible over time, because over time, things will change in your personal circumstances and also in the world at large. 
So think of your plan as a living, dynamic thing. Here’s the spoiler alert – we’re going to review and adjust our plan annually. No more, no less. None of this crazy weekly or monthly or even quarterly stuff. You’ll not only drive yourself crazy, but you’ll actually reduce the effectiveness of your plan.

So there you go:

You’re Planning – for your preferred future
You’re Preparing – for what might go wrong
You’re Reviewing – and adjusting on a regular basis (annually – no more, no less)

So you see, at that 30,000ft level, it’s super simple – but extremely important to understand and commit to the process. Three simple steps- Plan, Prepare, and Review.

The Bucket Plan

The Bucket Plan is a three-bucket approach to segmenting your money, based on the purpose and time before you will need it. Essentially, you are buying time with the funds you will need sooner, so you can invest the funds you won’t need until later for long-term growth and investment planning.

Let’s start with bucket 1 – the Now bucket.  This bucket is designed to cover expenses in the first year or two of retirement such as cars, home repairs and an emergency or comfort fund. This bucket has little to no exposure to the financial market. Returns will be minimal and likely not keep pace with inflation, so we don’t want to have more money than necessary in bucket 1. This is typically the money in the bank.

Next we have bucket 2 – the Soon bucket. This bucket helps address two of the biggest risks in retirement: inflation and sequence risk. This is the money that we may need to access sooner rather than later, so it should be invested for growth, but conservative growth.  Average returns should be higher than in the Now Bucket, providing a baseline of income and an inflation hedge, helping to offset the rising costs of gas, groceries and other daily living expenses. Yet by investing conservatively, you reduce your sequence risk – the risk of taking out money at a market low – as this account should not be exposed to extreme market fluctuations.

Finally, we have bucket 3 – the Later bucket, for the last phase of retirement. This bucket is designed for long-term growth, investment planning, and legacy planning. Since we have positioned money conservatively in the Now and Soon buckets, we now have the confidence to invest bucket 3 in more growth-oriented opportunities or those which require longer-term commitments.

Other assets you may have in your Later Bucket might include real estate, life and long term care insurance policies, and beneficiary liquidity plans.

One of the biggest misconceptions I see is when people think that legacy planning is “just for the kids.” In fact, legacy planning is actually MOST important for the surviving spouse. Going from the married to single tax brackets when one spouse passes, cuts the standard deduction in half, marginal brackets shrink, and overall taxes go up dramatically. In addition, the surviving spouse likely loses one of the two monthly Social Security checks and may also face a reduction or loss of a pension check. So in most cases, taxes go up and income goes down for a surviving spouse.

The Bucket Plan is a way to structure your financial assets to tackle today’s market challenges while meeting your immediate, short-term, and long-term goals.

To learn more about creating your own bucket plan, just call the office and schedule an in-person or virtual appointment. We serve clients throughout the US and we’d be happy to help you, too.

“We measure success not by some arbitrary statistic, but rather by our clients’ ability to achieve their personal retirement objectives.”

Tax and Wealth Advisors  |  Comprehensive Retirement Planning  |  Conservative Investment Strategies