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.

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 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.