How Do Buckets Ensure Financial Bliss in Retirement?
By Madison Taylor
In light of the recent fiduciary ruling by the Department of Labor, you may be wondering how using a bucket strategy can help you act in your clients’ best interest. Buckets provide a way for you to ensure that your clients short term income needs are safe from market ups and downs while their long term growth objectives are met with market exposure, that they have personal plans specific to their financial goals and needs, and that they have a plan that they can understand regardless of their previous financial experience.
Weathering Market Storms
One of the greatest benefits of bucketing is the safety net it casts for when the market will inevitably rise and fall. When the market isn’t performing, clients may panic, and be inclined to pull out of whatever plan they had previously made for one that will make them feel safe and secure in that moment. Buckets, however, give them a clear picture of their retirement plan down the road. Seeing that their income needs are met, and that their investments will have time to recover from a downturn will help them stick with their bucket plans, which will benefit them greatly down the road.
In addition to bringing peace-of-mind by providing a visual for their income down the road, buckets provide clients with a steady cash flow in the present. Buckets are a systematic way for a steady income because each year is planned, as opposed to scrambling to liquidate assets so that they have enough money even while the market is struggling. Having that steady, certain income ensures that clients will be able to give great thought to when they sell investments, and that ensures that they are selling them at the optimal times. This way, investments are serving at the greatest benefit to bring in the most income.
A Personalized Approach
Another incredible benefit of bucket strategies is that they can be personalized to each client. Based on their risk profile and their financial goals, you and your client can generate strategies with any number of buckets and any lengths of time. The flexibility of buckets even after the plan has been set is an added security because assets and investments can be adjusted, or have time to adjust, while the market weathers its ups and downs.
One of the most traditional methods of retirement income planning, Monte Carlo Simulation, does not allow for personalized strategies, and yet, they produce the same rate of returns with the same amount of risk. There is no one-size-fits-all in retirement income planning, and clients forced into such a mold can feel anxious about their funds in retirement. Creating a strategy specific to each client will inspire trust in you, as their financial advisor, and bring them peace-of-mind knowing that their retirement income plan was created with their unique circumstances and needs in mind.
Seeing is Believing
Your clients may not have attended business school, nor have they had years of experience in the financial industry like you have. Planning their retirement finances can be confusing, but using a bucket strategy can give clients a simple visual. With their personalized strategies, clients will have a better understanding of how their assets and investments will be used during their retirement.
In addition to the simple visual that a bucket strategy offers your clients, buckets create a plan that is easy for clients to understand. They will be able to see exactly where their money is, how it is being invested, and how their plan will support them through retirement. With this simple, easy-to-understand approach to retirement income planning, clients will be confident in themselves, their finances, and, in turn, you as their advisor.
As your clients approach retirement, it’s important for you to provide them with an income plan that can give them financial security in a volatile market, a simple, understandable approach, and a strategy that has been created with their unique needs in mind. Buckets are the clearest and easiest way to do that and ensure that you truly will be your clients’ last advisor.