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Designing a Retirement Asset Allocation Strategy Part II: Liquidity

Designing a Retirement Asset Allocation Strategy Part II: Liquidity

How to Fill Your Second Bucket in Our ‘3 Bucket Safe Money Approach’

The following article features content adapted from the book Momma’s Secret Recipe for Retirement Success by Dan Ahmad, Jim Files, and Jack Canfield. Get your copy here!

We’ve said it before, and we’ll say it again: You need a comprehensive, written retirement income plan if you’re serious about your retirement security. Your plan needs to tie everything about your money together, which we recommend doing with what we call the “3 Bucket Safe Money Approach.”

We wrote about Bucket #1 here in our first installment of articles on this topic, and you’ll want to read it before you continue below. Bucket #1 is the first step in your planning – the one where you determine how much income you need for the rest of your life and allocate the necessary assets to this pot of money. Bucket #2, which we’ll discuss in this article, is the second step in your planning. This is where you determine how much liquidity you need and allocate assets to this second pot of money accordingly.

Visualizing the Three-Part Pie Chart

It’s helpful to visualize the “3 Buckets” as a pie chart; essentially, an asset allocation chart. We want you to imagine a pie that has three separate and distinct sections (buckets) that all act differently, but in concert with one another to help you meet your goals.

Again, for an in-depth discussion of Bucket #1, head here before you continue reading.


SEE ALSO: Your Roadmap to Success: A Comprehensive Written Retirement Income Plan


Filling Bucket #2

For Bucket #2, we have to determine how much liquidity is needed for your plan. This money you will typically put into the bank, credit union, money markets, CD’s, and T-Bills. Let’s review the reasons you need money in Bucket #2:

  • Liquidity – You can access funds immediately.
  • Safety – You will not lose any money if the stock market crashes.
  • Fees – You typically don’t pay any fees to put your money in the bank.
  • Freedom – You will feel more financially independent the more money you have in the bank because you will feel more comfortable spending it.
  • Emergencies – None of us know when life might throw a curveball.
  • Self-Reliance – You’ll have decreased need to borrow money in the future because you can pay for large purchases with cash.

Right now, if you are thinking that the banks all pay such low rates of return… you are correct. But we do not advise you to put money in the bank for you to get a high rate of return from those assets. We use the bank for liquidity, safety, and no fees.

Why Bucket #2 Matters

Let’s say you’re going to buy a car two years from now and it’s going to cost you $50,000. What if you don’t put the money in the bank, what if you keep the money in the stock market, and then the stock market goes down by -50%? What if you still have to buy that same car that’s going to cost $50,000? How much does that new car now cost you? It costs you $100,000.

What if you’re going to do a $100,000 home remodel two years from now, you keep the money in the stock market, and the stock market goes down by -50%. How much does that $100,000 remodel cost you? If you are good at math, you will say $200,000. While mathematically accurate, it’s not realistic. The remodel doesn’t cost you anything because you don’t do it. You’ve lost so much money, so you’re afraid to use the money to do the home remodel at that point.

We want to make sure you keep money liquid, and you continue to add money in the bank every single month so that you have money available to spend in the future. What if you saved money in the bank every month throughout your retirement, and every month your bank account balance got bigger and bigger, would you be terribly unhappy, or would you be blissfully peaceful and anxiety-free?


SEE ALSO: What is a ‘Safe’ Income Withdrawal Rate?


Why We Believe in the ‘3 Bucket Safe Money Approach

Some advisors may not advise you to put money in the bank because they don’t get paid to do that.  We often advise clients to put money in the bank because it’s in their best interests. Your money has to work for you in different ways in retirement. By visualizing the pie chart and separating your money into the three buckets, you can ensure all your needs are covered, including your liquidity needs with Bucket #2.

We’ll be discussing Bucket #3 in a subsequent article, but if you want to learn more right now then check out our book, Momma’s Secret Recipe for Retirement Success. It’s full of the information you need to plan the secure retirement of your dreams.

 


This information is provided and intended to be used for general educational and informational purposes only and is not intended as a solicitation for you to buy or sell any financial product. This information is not mean to be relied upon as actual financial or tax advice. The ideas, thoughts, and strategies presented here are those of the Management Team and provide an insight to our views at Peak Financial Freedom Group, LLC and its affiliates. None of this information is intended to give you specific tax, investment, real estate, legal, estate, or financial advice. The planning and ideas in this data are not suitable for all individuals or situations. Consult a qualified financial professional before making any investment decision.
All research information provided is public source material. This material may also include additional references to articles, news, commentary, opinions, viewpoints, analyses, and other information developed by Peak Financial Freedom Group and/or affiliated and/or unaffiliated third parties, which is subject to change at any time without notice. Information and opinions provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. Peak Financial Freedom Group and its affiliates are not responsible for errors or omissions in the material and do not necessarily approve of or endorsed the information provided. This information is provided “as is” and no party makes any representations or warranties of any kind either express or implied, with respect to this information. Peak Financial Freedom Group, LLC and its affiliates do not warrant the information provided to be correct, complete, accurate or timely, and is not responsible for any errors or omissions in the information or any investment decisions, damages, or other losses resulting from, or related to, use of said information. The ideas, thoughts, and strategies presented here are those of our management teams and provide an insight into our views on Peak Financial Freedom Group, LLC, and its affiliates. Every detail presented here is subject to change without notice at any time.
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2520 Douglas Boulevard, Suite 110
Roseville, CA 95661

DISCLOSURE:

All of the information presented here is provided and intended to be used for general educational and informational purposes only and is not intended as a solicitation for you to buy or sell any financial product. None of the information presented is intended to give you specific tax, investment, real estate, legal, estate, or financial advice but rather to serve as an educational platform to deliver information. The ideas, thoughts, and strategies presented here are those of the Management Team and provide an insight to our views on Peak Financial Freedom Group, LLC. Every detail in this website is subject to change without notice. Seminar, radio shows, TV productions, book releases, magazine and book promotions are sponsored, promoted and paid for by Peak Financial Freedom Group, LLC.


2nd Opinion Package available to Qualified Retirees and Soon-To-Be-Retirees may include free consultations, a free retirement income plan, risk analysis, and fee analysis. In addition, a comprehensive written retirement income plan may be provided to those who complete the entire process. Qualified Retirees and Soon-To-Be Retirees must have a minimum of $1,000,000 of investible assets such as IRA’s, 401K’s from past employers, stocks, bonds, mutual funds, bank accounts, money markets, CD’s, etc., but DOES NOT include real estate, businesses, limited partnerships, 401K/retirement plans that can’t be moved to another plan, and other illiquid type assets.


All investments involve risk, can involve the loss of principal, and unless otherwise stated, are not guaranteed. Past performance is no indication of future performance and such information cannot be relied upon regarding future potential gains. Nothing is directly or indirectly guaranteed by this information. The planning and ideas presented herein are not suitable for all individuals or situations. Hypothetical examples are used to explain concepts and are not indicative of potential results you could receive; past performance is not a guarantee of future results; and results are not indicative of any particular investment or income tax situation; your results will be different and could be lower or higher. Consult your financial professional before making any investment decision. Insurance product features and benefits, such as guaranteed lifetime income riders, are subject to contract terms, limitations, fees, and the claims paying ability of the insurance company issuing the contract. The sale or liquidation of any stock, bond, IRA, certificate of deposit, mutual fund, annuity, or other asset to fund the purchase of any other asset including an annuity may have tax consequences, early withdrawal penalties, or other costs and penalties as a result of the sale or liquidation. Different assets can be complex and carry fees, costs, and surrender charges. If you place assets under management with Fiduciary Solutions
LLC, we are paid an advisory fee from Fiduciary Solutions LLC and if you purchase an annuity through us, we are paid commissions from an insurance company.


2019(1), 2020(2), 2021(3), and 2022(4) Five Star Professional Wealth Manager Award - Dan Ahmad and Jim Files have been nominated for and have won the 2019, 2020, 2021, and 2022 Five Star Wealth Manager Awards. Wealth managers do not pay a fee to be considered or placed on the final list of Five Star Wealth Managers. Once awarded, wealth managers may purchase additional profile ad space or promotional products. Award does not evaluate the quality of services provided to clients. The Five Star award is not indicative of the wealth manager’s future performance. The inclusion of a wealth manager on the Five Star Wealth Manager list should not be construed as an endorsement of the wealth manager by Five Star Professional or this publication. Working with a Five Star Wealth Manager or any wealth manager is no guarantee as to future investment success, nor is there any guarantee that the selected wealth managers will be awarded this accomplishment by Five Star Professional in the future. Award winners represent an exclusive group of wealth managers who have demonstrated excellence in their field by satisfying 10 objective selection criteria. For additional information on the Five Star award, including a complete list of the 10 objective selection criteria and their research/selection methodology, go to https://fivestarprofessional.com.


Investment advisory services are offered through Fiduciary Solutions, LLC, a California Registered Investment Advisor. Insurance products and services are offered through PFFG Insurance Agency LLC, a licensed insurance agency (CA Insurance License #0N14013). Peak Financial Freedom Group LLC is a financial planning and umbrella marketing organization, which enables the provision of multiple financial services under one brand. Peak Financial Freedom Group LLC, PFFG Insurance Agency LLC, and Fiduciary Solutions LLC are affiliated entities with common ownership and control.


Jim Files is licensed as an investment adviser representative with Fiduciary Solutions LLC (CRD #1620449) and is a licensed insurance producer with PFFG Insurance Agency LLC (CA Insurance License #0F06511). Dan Ahmad is licensed as an investment adviser representative with Fiduciary Solutions LLC (CRD # 1491561) and is a licensed insurance producer with PFFG Insurance Agency LLC (CA Insurance License #0732913).

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