The Bucket Approach to Retirement Planning

When considering how you are going to fund your retirement, you need to consider the best way that you can do so without having money problems now or in the near future. One of the best ways that you can put away a lot of money for your retirement is to use the bucket approach to retirement planning. This form of retirement planning and investment can have really positive benefits for you and ensure that you always have the money you need when you need it.

A lot of people don't really have an overall approach to how they are going to fund their retirement, or they end up investing in one way only and this ends up not being the right thing for them to do or they pay a lot in hidden account costs. The bucket approach to retirement planning requires you to split up your investments into a three prong or bucket approach that will make sure that you have money for the next few years, for your retirement, and for forever costs, such as inheritance for your children. Using this approach will make sure that you have multiple streams of income for the different stages of your life.

The Three Buckets

When you are designing your retirement planning strategy, you are going to put your investments into three different buckets. The first bucket is going to be designed to help you in the short-term, for the next three years or so. You would generally want to fund this bucket with safe, liquid assets that you can easily access. This will usually consist of things like cash, money markets, CDs and the like. In this bucket, tax deferral should not be a major concern but protecting your wealthy may be.

The second bucket that you are going to create is your money later bucket. This is the money that you will need to access later in the future, once you reach the age of retirement until death. This is the place where you are going to want to place some of your riskier assets. This would be things like stocks, bonds, mutual funds, variable annuities and other such investments like this. In this bucket, you want to consider the types of investments that you can offer you tax advantages. Tax-free distributions from your accounts can be really advantageous to you in the long run.

The third bucket that you are going to create is the money forever bucket. It's usually designed with the idea of leaving money to your heirs after you have passed on. The major thing that you are going to leave in this bucket is permanent life insurance because it offers so many benefits, including tax-free buildup and a tax-free death benefit to heirs. You can also supplement this bucket with things like business interests and real estate, but the main portion of it will come from your permanent life insurance policy.

Discuss Your Approach with Advisors

The bucket approach to retirement planning could be something that you want to try. Before you start making any of these investments, it's a good idea for you to spend some time talking it over with a financial advisor. Your CPA may be a valuable resource in discussing something like this. What you decide to invest and how you decide to invest it will have a major impact on your future. As such, you need to make sure that you make the right investment choices from the get go. Consult your advisor today and see what your options for the future are.

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