How to Design a Retirement Asset Allocation for Safety, Growth & Income for Life

How to use the ‘Three Buckets Approach’ – And Why it’s Important

The following content is excerpted from Momma’s Secret Recipe for Retirement Success, by Dan Ahmad, Jim Files, and Jack Canfield. Get your copy here!

In our book, Momma’s Secret Recipe for Retirement Success, we discuss “The 7 Rules To Live By For Retirement Security,” some of which we have also written about on this blog and you can find linked below:

  1. Avoid Large Losses – Use the 5%-10% Rule
  2. Minimize Fees
  3. Significantly Reduce Volatility
  4. Earn a Reasonable Return Rate
  5. Manage Taxation
  6. Generate “Certain Income” from Your Assets that Will Last for as Long as You Live
  7. Have a Written Retirement Income Plan

If you are like retirees we have met with, you probably love the idea of having a “Retirement Planning Roadmap” like this, right? It’s designed to help you plan for retirement income you can count on – for life.

Your Retirement Reality Check

Here’s an important reality: One investment alone will not allow you to follow “The 7 Rules To Live By For Retirement Security.” You can realize the benefits of following all seven rules when you have an actual plan that ties everything about your money together and when you use what we call the “3 Bucket Safe Money Approach.”

If you are serious about your financial security, your next question is probably, “OK, I really like the idea, but how do I implement it?” So, let’s discuss the “3 Bucket Safe Money Approach” in a way that asks you to imagine the 3 Buckets as a pie chart; an allocation of assets chart. The most important thing to know about our pie chart is it is not just a bunch of mutual funds crammed into one pie, with a lot of the mutual funds behaving similarly. The pie chart we want you to imagine has three separate and distinct sections (buckets) that all act differently, but in concert with one another to help you meet your goals.

First, we determine the amount of income you need for the rest of your life and allocate the assets to Bucket #1 required to produce this amount of income. Second, we determine how much liquidity you need and allocate the assets required to Bucket #2. And third, we determine how much growth you want and allocate the assets required to Bucket #3.

Today, we’ll dive deep into Bucket #1.

SEE ALSO: This is the Number One Thing You Can Do to Gain Greater Retirement Security

The Three Buckets Approach: Filling Bucket #1

For Bucket #1 the goal is to create a high level of income that is guaranteed to be paid to you for as long as you live. We use contractually guaranteed insurance products that are called fixed index annuities with income riders. We use A+ rated insurance companies that have been operating since before the Great Depression, with these companies having a history of keeping all of their contractual financial guarantees to their contract owners even through some of the worst economic time periods the United States has ever been through.

And we know, we just used the bad “A-word” called annuities, which is a dirty word to a lot of people because you’ve heard bad things about annuities. Some of the bad things you have heard about annuities may actually be accurate when you are talking about certain types of annuities. We have seen variable annuities that do not provide principal protection against stock market losses and can carry annual fees as high as 6.5%. Our firm works only with fixed-indexed annuities. But let’s look at how a fixed index annuity with an income rider works.

Understanding Fixed Index Annuities with Income Riders

Fixed index annuities with income riders are specifically designed to:

  • Guarantee you won’t lose any principal from stock market losses. If the stock market crashes -53.8% like it did in the 2008 Financial Crisis, you would lose 0%.
  • Provide you income guaranteed for as long as you live, and if married, for as long as your spouse lives. Some plans allow for immediate income (within 30 days) while many plans allow income after 12 months. While income can start immediately, you can’t take all of your principal out for a certain time period without paying a premature withdrawal penalty (like a CD).
  • Even if you live past life expectancy and use up all the assets in your fixed index annuity with an income rider, and your account value goes to $0, you will still continue to receive the same income for as long as you live. You can’t outlive your income!
  • Guarantee you won’t lose any of your current or future gains from stock market losses. For example, if you earn a hypothetical 6% rate of return for five straight years and then the market crashes -50%, 100% of your original principal is protected from losses and 100% of all the gain you made during the five years is protected. What you earn can’t be lost.
  • Potential competitive growth rates from a low-risk asset. What does “competitive” mean? It does not mean stock market rates of return. If you want to earn stock market rates of return, you must be willing to take stock market risks. The stock market, as measured by the S&P 500 Index, grew by +19% in 2017, which was a great year. But if you wanted the opportunity to earn +19% in 2017, you had to be willing to take the -53.8% risk the stock market lost in the 2008 Financial Crisis. In 2017 when the stock market grew by +19%, the return goals for fixed index annuities with income riders would have been between +8% to +12%, without principal risk. So, the +8% to +12% return goals were competitive, but they were short of the +19% the market earned, and there is no guarantee the funds will grow at all.
  • Allows the assets to grow income tax-deferred until you take distributions. Unlike a portfolio of mutual funds, stocks, and bonds, all annual gains are not reported on your tax return if you are not taking distributions.
  • Provide the opportunity for future income increases either through guaranteed increases by deferring income or with potential annual increases based on index performance.
  • Carry low fees. The typical total annual fee for a fixed index annuity with an income rider is between 0% to 2%, with the average being right about 1%.
  • Passes 100% of assets remaining in your account when you die to your beneficiaries; the insurance company does not keep your money.

So, if fixed index annuities with income riders actually did all of these things, would it be a good place to put some of your retirement assets? In many cases it would.

Would the word “annuity” be a bad word or a very good word? It might seems like a pretty good word now.

Should you put all of your money in a fixed index annuity with an income rider? Definitely not, because they are not a one-size fits all solutions. They also have their own limitations, such as a surrender penalty for a certain time period.

SEE ALSO: An Income Stream You Can’t Outlive

Important: Understanding What Bucket #1 is NOT

You put the portion of your assets into a fixed index annuity with an income rider that you want immediate or future guaranteed income from and that you want 100% principal protection from all stock market losses. It’s important to understand fixed index annuities with income riders are not designed to:

  • Give you 100% liquid access to all your funds starting immediately.
  • Give you 100% of the stock market upside and gains.
  • Be used as a short-term asset alternative.

Why the Three Buckets Approach is Important

The three buckets can be used to create a powerful plan for you, and it all starts with Bucket #1. If you’re interested in learning more about Buckets #2 and #3, we’ll dive deep in future blog posts. You can also grab your copy of Momma’s Secret Recipe for Retirement Success, right here! We cover the three buckets extensively, as well as a plethora of other topics to help you plan the secure retirement of your dreams.

Are you ready to get started protecting and preserving your retirement today? Contact us today. At Peak Financial Freedom Group, we want you to have control over your future. We look forward to helping you achieve the financial independence you desire.

Peak Financial Freedom Group
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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