An investment approach that can help you secure a comfortable retirement
Retirement is a significant milestone in one’s life, which requires careful planning and foresight to ensure a comfortable and stress-free transition. One effective way to plan for retirement is by adopting the Retirement Bucket Strategy. This investment approach segregates your sources of income into three buckets: immediate (short-term), intermediate, and long-term.
Each of these buckets has a defined purpose based on when the money is needed, enabling you to better optimize your investments and minimize financial risk. Here are the fundamentals of the Retirement Bucket Strategy and how to implement it for a secure and prosperous retirement.
The Three-Bucket Approach
The Immediate (Short-term) Bucket. The primary purpose of the immediate bucket is to provide liquidity and cover your daily expenses and emergency needs during the initial years of retirement. This bucket should hold assets that can be easily converted into cash, such as savings accounts, money market funds, or short-term certificates of deposit (CDs).
Typically, this bucket should cover around two to five years of living expenses. By having a cash reserve, you can avoid the need to sell long-term investments during market downturns, preserving your portfolio’s growth potential.
The Intermediate Bucket. The intermediate bucket is designed to provide income and growth for the next five to fifteen years of your retirement. This bucket should be composed of more conservative investments, such as bonds or dividend-paying stocks, which offer a balance of income and potential capital appreciation.
The assets in this bucket should be less volatile than those in the long-term bucket but provide higher returns than the short-term bucket. This strategy allows you to maintain a comfortable lifestyle while keeping up with inflation and preserving your wealth.
The Long-term Bucket. The long-term bucket is meant to generate growth and income for the later years of your retirement, generally fifteen years or more from the start. This bucket should hold more aggressive investments, such as stocks, mutual funds, or exchange-traded funds (ETFs), which have higher growth potential but also come with increased volatility.
By allocating a portion of your portfolio to these growth-oriented investments, you can counteract the effects of inflation and ensure that your retirement savings last throughout your lifetime.
Implementing the Bucket Strategy
To effectively implement the Retirement Bucket Strategy, follow these steps:
Determine your annual expenses: Calculate your estimated annual expenses during retirement, including housing, healthcare, food, insurance, and leisure activities. This will help you understand how much money you need to allocate to each bucket.
Allocate your assets: Based on your estimated expenses, allocate your assets across the three buckets. Aim for a well-diversified portfolio that aligns with your risk tolerance and financial goals.
Rebalance your buckets: As you progress through retirement, it’s crucial to periodically rebalance your buckets. Move funds from the long-term bucket to the intermediate bucket, and from the intermediate bucket to the immediate bucket as needed. This ensures that your asset allocation remains aligned with your time horizon and changing financial needs.
Adjust for inflation: Regularly review your expenses and adjust your buckets to account for inflation. This will help you maintain your purchasing power and ensure that you can continue to live comfortably throughout retirement.
Your Financial Advisor
The Retirement Bucket Strategy is a practical and effective approach to managing your retirement finances. By segregating your sources of income into immediate, intermediate, and long-term buckets, you can optimize your investments, minimize financial risk, and ensure a secure and comfortable retirement.
As with any investment strategy, it’s essential to consult with your financial advisor to ensure that your unique financial goals and risk tolerance are taken into account. Give us a call at (540) 720-5656 if you have any questions or if there’s a way we can help.
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Amy Anderson joined the ILG Financial team in 2023 as the client relations coordinator. Her responsibilities include scheduling of appointments, annual check-up notifications, and annuity and required minimum distribution assistance. She is a graduate of Harding University with a degree in Computer Information Systems. Amy and her husband have two children and she enjoys reading, crocheting, music and spending time with her family.
Chase Lopez joined the ILG Financial team in 2020 as an advisor. Chase is a 2016 James Madison University graduate with a degree in management. Chase has been trained under the tutelage of Dave Lopez, who is not only the founder and managing member of ILG Financial, but also is Chase’s uncle and godfather. He also enjoys working alongside his cousin, Megan, who is Dave’s daughter. Chase, as a fiduciary, believes in putting his clients interests first, and building out plans for his clients where they can have a happy and fruitful retirement. He married his beautiful wife in February 2022 and both use most of their free time chasing around their little pup, Aurora.
Jessica Carson joined the ILG Financial team in 2018 as an agent. Jessica and her husband have four children, two dogs, 3 barn cats, 5 chickens, and three parakeets. She indeed loves her children and pets! When not at work, Jessica enjoys playing the piano and cello as well as traveling and spending time outside with her family, hiking, fishing, and boating.
Terri Center joined the ILG Financial team in 2019 as client services manager. She handles client records, application processing, and gathering information to provide a professional and friendly experience with all of our clients. Terri is a graduate of Oakland University. She is married and has two children. She enjoys hiking, family time, and puzzle challenging video games. She also likes to share her creativity in her canvas paintings and sewing projects.
Megan Jones joined the ILG Financial team in 2020 as marketing director. Megan and her husband live in Fredericksburg, VA with their German Short Haired Pointer, Gus. Megan is a graduate of Longwood University and holds a degree in communications. Megan is the oldest of Dave Lopez’s three children and not only enjoys working alongside her father, but also with her cousin, Chase, who joined the ILG Financial team in 2020 as an advisor. When not at work, Megan enjoys sitting on the back porch with family and friends enjoying food and music.