When you are nearing retirement or in retirement, it is normal to shift your investment philosophy to better fit your needs and goals. During your career, you may not have worried about market corrections or downturns as much, because you weren’t tapping into your portfolio yet. However, when you get to retirement and you are withdrawing money from your portfolio, downturns may hurt a lot more and can have a significant impact on your financial plan. For this reason, it might be important to shift your risk tolerance and the strategy you use to invest. We still need to take some risk in your portfolio as your retirement may be 1/3 of your life and we try to keep up with most retiree’s main concerns: inflation, healthcare expenses and taxes.
This is exactly why we at Bloom Wealth Advisors utilize a bucketing strategy for anyone nearing or in the distribution phase of life. Not sure what a bucketing strategy is? Let me break it all down for you:
When we manage your portfolio, we are thinking years into the future to determine how much money you might need in the next 10ish years.
Short Term Bucket:
We strive to estimate how much you need each year, and we project how much you will approximately need to fund your lifestyle in the next three years. We hold this three year need in what we call a “short term bucket.” This is all money that is in ultra-short term investments so that it is available for you when you need it. If you are nearing RMD age, believe it or not, we already have your RMDs in a short-term bucket for you.
The importance of a short-term bucket is if the market is down, this money is not as susceptible to volatility, and the money you need can be available without having to tap into down investments.
Medium Term Bucket:
The next bucket we utilize is for money you need in the next 4-9 years. Obviously, the farther out we go, the more difficult it can be to project out how much you are going to need. We estimate roughly how much you need each year and then inflate it out for the future. The medium term bucket will take a little more risk, but still have some short-term investments.
Long Term Bucket:
This is the bucket for any money you won’t need for over 10 years. This is the portion of your portfolio that is still aggressive and takes some risk. Remember, we may need to keep up with inflation, health care expenses and taxes. This is the bucket that will be more volatile and hopefully get more growth over the long term.
As time goes on, we shift around these buckets and add more to the short-term bucket as your near term cash need grows. The good thing about a bucket strategy, is it gives us more options for your cash flow strategy. If the market is up, we may not take money from the short-term bucket, we may instead take it from the long term bucket. However, if the market is down, it’s helpful to have the short-term bucket to tap into, and not have to touch the long-term bucket which may be down based on the market.
At Bloom Wealth Advisors, we want you to have options. Utilizing a bucketing strategy can help give you more options and more protection. The strategy you used to build your wealth may have to shift in order to preserve your wealth. As your financial partner, the investment approach we take will evolve as your life and needs change. This is exactly why we take such a comprehensive approach with our relationship, as we want to know you and understand your needs. Do you ever wonder why every meeting we ask about your cash balances, your upcoming expenses, or things you’re dreaming about? Well, it’s because we want to plan for your future and be efficient with your hard earned money to provide for your many goals and needs.
If you are curious about your bucketing strategy, reach out to us and we will be happy to review it with you.
If you don’t have comprehensive guidance and investment management, reach out to us to learn how we can add value to your life!
As always, we are so grateful for our partnership and serving you is our greatest honor. Please reach out if you have any questions or need more support.
Warmly,
Alana Macy
