Prosperity Capital Advisors created a planning philosophy and tool known as The Bucket Plan® Best Interest Process, a three-bucket approach to segment money based on purpose and time horizon.
Navigating market volatility, taxes, inflation and increasing life expectancies can be challenging when planning for retirement. Investing too safely and clients run the risk of losing purchasing power due to inflation; investing too aggressively can expose a client to significant financial loss. Both scenarios can create the risk of a client running out of money prematurely in retirement. To address these challenges, The Bucket Plan Best Interest Process can be applied to segment clients’ assets in the order they will need them, taking into account income needs, time horizon and tax qualifications.
The Bucket Plan helps mitigate the greatest dangers of retirement today; market risk, interest rate risk and sequence of returns risk. For retirees, The Bucket Plan helps to structure assets to provide reliable income throughout retirement, protect against health care expenses eroding their net worth, and all ensuring all the assets pass on to the intended beneficiaries in the most tax-efficient manner.
For younger clients, The Bucket Plan helps navigate the challenges of saving for short-, intermediate- and long-term financial goals while ensuring proper tax diversification and a plan for the “what if” is in place.
The “Now” bucket is designed to be a client’s safe and secure money and to be used to cover living expenses in the first year or two of your retirement, as well as provide liquidity for larger planned expenses, such as a new car or home repairs. It’s also an emergency fund in case unexpected expenses arise.
The “Soon” Bucket is the preservation bucket. Because this money may be needed sooner rather than later, it is invested for growth—but conservatively. This may provide income in the first phase of retirement and act as an inflation hedge to help combat the rising cost of living. By investing conservatively, a client avoids the risk of being forced to sell during a large downward swing, ultimately liquidating a bigger piece of their overall portfolio for the same income amount. The “Soon” Bucket is created to reduce your exposure to extreme market fluctuations, ultimately eliminating sequence of returns risk.
The “Later” Bucket is designed for long-term growth and legacy planning. Having bought a time horizon with the first two buckets, a client can choose to invest in vehicles with a longer time commitment and greater growth potential with more confidence. In retirement, this bucket can play a critical role in legacy planning too, particularly to provide income for a surviving spouse.
“In the Soon Bucket we insure against what can go wrong, to acquire the luxury of investing in what can go right in the later bucket.”
– Jason Smith, Prosperity Capital Advisors Chairman| Founder
The Bucket Plan
This philosophy is expanded upon in the bestselling, consumer-facing book, The Bucket Plan: Growing and Protecting Your Assets for a Worry-Free Retirement.