Matt' Money: A bucket plan to go with your bucket list

by Matt Montgomery

A Bucket Plan to Go with Your Bucket List

Baby Boomers (born from 1946 to 1964) have re-defined just about everything they’ve touched, from music to marriage to parenting and, more lately, to what “old” means.

Today, 70 is starting to look like the new 60 as many Boomers plan to work into their 70s. Since we’re living longer and healthier lives, Boomer are realizing now the additional stress living longer can have on the sustainability of their retirement assets.

Consider the Bucket Strategy. It has two basic forms, the Expense Strategy and the Timeframe Strategy.

1. The Expenses Bucket Strategy: Segment your retirement expenses into three buckets: Basic Living Bucket (Food, rent, utilities, etc.), Discretionary Bucket (Vacations, dining out, etc.), and the Legacy Bucket (Assets for heirs and charities). Then you “pair” the appropriate investments to each bucket.

For instance, Social Security might be assigned to the Basic Living Expenses bucket. If this source of income falls short, you might consider whether a fixed annuity can help fill the gap. You’re simply matching income sources to essential expenses.

The Discretionary Expense bucket might consider investing in top-rated bonds and large-cap stocks that offer the potential for growth and have a long-term history of paying a steady dividend. Finally, the Legacy Assets are those you expect to pass on. Here, you may consider more aggressive investments, such as small-cap stocks and international equity.

2. The Timeframe Bucket Strategy: This approach creates buckets based on different timeframes. Then, you assign the appropriate investments to each bucket.

The 1 to 5 Year Bucket: This bucket funds your near-term expenses. It may be filled with cash and cash alternatives, such as money market accounts. Money market funds are considered low-risk securities, but they are not backed by any government institution, so it’s possible to lose money.

The 6 to 10 Year Bucket: This bucket is designed to help replenish the funds in the 1-5 Years bucket. Investments might include a diversified, intermediate, top-rated bond portfolio. Diversification is an approach to help manage investment risk. It does not eliminate the risk of loss if security prices decline.

The 11 to 20 Year Bucket: This bucket may be filled with investments such as large-cap stocks that offer the potential for growth.

The More than 21 Years Bucket: This bucket might include longer-term investments such as small-cap and international stocks.

Each bucket is set up to be replenished by the next longer-term bucket. This approach can offer flexibility to provide replenishment at more opportune times. For example, if stock prices move higher, you might consider replenishing the 6-10 Years bucket even though it’s not quite time.

A bucket approach like these examples may not help you build a safe and effective retirement income strategy, but it can also help you match your investments to the bucket needed.

Securities offered through Royal Alliance Associates, Inc. Member FINRA, SIPC. Advisory services offered through Matt Montgomery, a Registered Investment Advisor not affiliated with Royal Alliance Associates, Inc., 1504 East Rusk, Jacksonville, Texas, 903-586-3494, * An Index is a portfolio of specific securities (common examples are S&P, DJIA, NASDAQ), the performance of which is used as a benchmark in judging the relative performance of certain asset classes. Indexes are un-managed portfolios and investors cannot invest directly in an index. Past performance is not indicative of future results.