Eric C. Jansen, ChFC

The nature and purpose of buckets for each retirement phase can be designated this way: the go-go bucket, the slow-go bucket and the no-go bucket.

Making the transition from saving for retirement to generating an income from those savings, to meet retirement goals, can be tricky. Key planning issues for pre-retirees include knowing how much they can safely withdraw each year and the best ways to invest their retirement funds to pay for each phase of retirement.

One way to address both issues is to use the time-honored financial management technique of maintaining different pools of assets or cash to fund different phases or needs in retirement. This approach not only fosters more purposeful investment, but also helps ensure proper budgeting to avoid overspending — or, for those overly concerned with running out of money, underspending to the point where their retirement years aren’t what they had envisioned. 

A good way to set up buckets is to assign them chronologically to the natural phases of retired life. These phases are aptly described in author Michael Stein’s classic book 

The Prosperous Retirement: Guide to the New Reality.

Stein breaks down the typical retirement progression into 3 basic phases: what he calls the “go-go years,” the early period just after retiring, when people typically in their 60s do most of their traveling and frequently engage in other leisure and recreational activities; the “slow-go” years, when people are typically in their 70s and tend to stay home more and not engage in leisure and recreational pursuits as much because of advancing age; and the “no-go years,” when the onset of debilitating health problems tends to preclude travel and leisure — or fixing up their homes or going out to eat — for people in their 80s and 90s.

Using Stein’s catchy monikers, the nature and purpose of buckets for each retirement phase can be designated this way:

 There’s no such thing as a typical retirement, as people have different goals and preferred lifestyles. So precisely what type of assets are right for this bucket varies with the individual. For many, most of these assets are short-term or conservative, so they’re not forced to sell when the market’s down to pay for an upcoming Mediterranean cruise or cross-country road trip. The amount of funding also depends on whether you’re going to play golf at a country club or rely on public courses, how often you can afford to eat out and in what style, and whether you’re going to continue to drive late-model cars or let your car age with you.

 Because you’ll probably draw on this bucket longer and won’t rely on it as much for quick cash for imminent getaways, these assets can be longer-term. As you might maintain this bucket for 10 years or more, depending on your risk tolerance, you may want to fill it with moderate-growth funds, higher yielding bonds, and dividend-paying stocks. Returns, interest, and dividends from these investments can be used to replenish the go-go bucket with cash as needed.

 Assets in this bucket should be longer term, as this is the final phase and there’s more time for asset appreciation. Again, depending on your risk tolerance, this bucket could initially be composed of growth-oriented funds, dividend-paying stocks and individual bonds or exchange-traded funds. As you age toward this phase, it’s a good idea to shift an increasing percentage of slow-go assets out of long-term investments and into more liquid ones to pay potential health care bills. What part of your total assets you’ll want to allocate to this bucket depends on your overall wealth, lifestyle objectives and current health status. It can also depend on the type of health insurance coverage you maintain to fill gaps not covered by Medicare, such as a supplemental insurance plan and long-term care insurance.

Of course, in addition to travel/leisure and healthcare, you’ll need to pay living expenses. These expenses can be taken care of out of a fourth bucket to generate income through all 3 retirement phases. This bucket should be filled with enough cash to cover living expenses for 1 or 2 years, with the rest in growth and income-oriented investments that can keep pace with the rising cost of living throughout your retirement.

Another approach is to keep buckets for each phase more modular and flexible, filling them as you go from a “mother-ship” bucket that generates income that can be distributed to buckets for different expenses. This is more of a goal- or expense-based system than a chronological setup.

How much to allocate to each bucket is a highly personal decision based on your particular circumstances. How long each phase of your retirement will last is usually driven by health-related events whose timing is impossible to predict.

Regardless of how your buckets are structured, having different buckets for different phases or needs in retirement is a good way to assure that you don’t run out of money to pay living expenses while pursuing the affordable goals you’ve long dreamed about — your real bucket list.

Eric C. Jansen, a Chartered Financial Consultant, is the founder, president and chief investment officer of Westborough, Mass.-based 

, which provides fee-only retirement-income planning and investment management services for high-net-worth clients nationwide.

Articles

Having different buckets for each life phase is a good way to assure you don't run out of money while pursuing your goals.

Using Buckets to Manage Finances in Retirement

The suitability standard entails that financial advisors serve their clients regardless of ethical considerations.

Dentists, ever mindful of the Hippocratic oath, might assume that all professionals adhere to uniform and ethical standards of client care.

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When it comes to the financial advice industry, that assumption might not always be accurate.

Financial advisors work under one of two different standards of care. Some, at times, may follow a standard that many dental care providers would find surprising, if not appalling. It’s called the suitability standard, and broadly stated, advisors’ recommendations under this standard must generally be consistent with their clients’ best interests. Sounds good, right? Not necessarily. The devil is in the details.

Specifically, advice rendered under the suitability standard is considered incidental to the sale of financial products, and the recommendations advisors make must be suitable for at least some investors. This means that as long as an investment fits the needs of the client in some way, the advisor is free to recommend an investment that pays said client the highest commission or fee, even though this may mean higher expenses for the client. In the end, advisors can ironically recommend what is the least suitable option as long as it satisfies this narrow suitability test.

How’s that for a conflict of interest? In many instances, product sales, instead of unbiased advice and guidance, drive the advisor-client relationship.     

The other standard of care is the fiduciary standard. Akin to the Hippocratic oath, this standard requires advisors to put their clients’ best interests ahead of their own. For instance, faced with two identical products but with different fees, advisors under the fiduciary standard are compelled to recommend the one with the least cost to the client, even if it means less compensation for themselves and their firm. This is the standard of care many dentists might assume their advisors are operating under, but often that’s not the case.  

So why are there two standards anyway? The answer lies in how the financial advice industry is structured. There are currently far more commission-based advisors than fee-based advisors. Typically, financial advisors in the U.S. are product-centric, commission-based brokers or sales reps who work under the auspices of the roughly 3,800 broker-dealers that distribute both proprietary and non-proprietary products to consumers through their financial advisor/registered representative sales forces.

A battle is ongoing over this very issue, involving the Department of Labor (DOL) the Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA), the financial services industry and consumers.

New regulations that would impose the fiduciary standard on all advisors have been proposed by the DOL for advice that involves qualified retirement plans, including IRAs and 401(k) plans. Predictably, this change is being contested for various reasons. Some provisions of the regulations became effective in June, and the rest would take effect January 1, barring further delays or repeal. That’s a start, but time will tell whether the new regulations become fully enacted.

In the meantime, you can get a clue as to which standard an advisor is operating under by determining how he or she is paid. If you’re currently receiving financial advice at no charge &shy;— in exchange for purchasing financial products from your advisor – then he/she is most likely working under the suitability standard. Further, busy physicians can save time by directly asking advisors outright which of the two standards they operate under.

The best chance of engaging an advisor whose compensation structure and standards of care are aligned with your interests is to hire one who goes by the fiduciary standard and whom clients pay a fee for advice (assuming they’re qualified to give it). For starters, look for designations such as a Certified Financial Planner (CFP®) or Chartered Financial Consultant (ChFC

Eric C. Jansen, ChFC®, is the founder, president and chief investment officer of Westborough, Mass.-based 

, which provides fee-only retirement-income planning and investment management services for high-net-worth clients nationwide.  

Registered Representative/Securities and Investment Advisory Services offered through Signator Investors, Inc. Member FINRA, SIPC, a Registered Investment Advisor. AspenCross Wealth Management is independent of Signator Investors.

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As health care professionals committed to ethics, it may not occur to dentists that their financial advisors don't adhere to the same principles. Advisors serve the best interests of their clients, and if you are not on top of the nuances of the financial advice industry, you may find yourself in a conflict of interest. Continue below to learn more about finding advisors who care as much about ethical practices as you do. 

Look for Advisors Committed to Doing No Harm

Chances are, you own some retirement products, such as annuities. But to get to retirement, you need a cohesive plan involving those products, not just the products alone.

Medical professionals are among the millions of Americans who confuse the financial products they own with having a retirement plan. 

Unfortunately, most individuals don’t have a plan. Instead, they own a variety of products they’ve been sold by a commission-based financial advisor, broker or insurance representative — who often is a salesperson masquerading as a financial planner.

These products typically include annuities, a collection of uncoordinated mutual funds and brokerage accounts that hold a variety of stocks, bonds, exchange-traded funds or other investment vehicles. Sales people uncovered perceived needs and then sold products to fill them — or so the customers thought.

A financial product is not a retirement plan. A retirement plan is a well-thought-out blueprint for achieving specific retirement goals. The foundation of this blueprint is defining the retirement lifestyle you envision, as simple or as extravagant as that might be, and then putting a price tag on it. It is on this foundation that your retirement savings and investment strategies should be built.

Properly linking your retirement goals with your investment decisions is what true retirement planning is all about. The plan should come first, and then appropriate investment strategies can be designed and implemented to fulfill it. Then these strategies are monitored to ensure that your plan stays on track.

A well-crafted retirement plan takes into consideration all your sources of income in retirement, and accounts for the potential impact of federal, state and local taxes, particularly if you’re considering moving to another state (or even out of the country) when you retire. Also considered are the impact of inflation and a variety of hypothetical savings and growth rates on your retirement assets. Social Security maximization strategies are also important considerations. For self-employed medical professionals, retirement plans should include potential exit strategies from practices.

If you’ve acquired financial products without first designing a plan, you’ll most likely find yourself in a retirement lifestyle dictated by chance and circumstance instead of the one you could have had with thoughtful planning and a coordinated investment strategy.

The scenario of owning products without a plan is not unusual for busy physicians and dentists, who are often targets for financial salespeople and don’t take the time to plan. Failing to plan is common even among those who have far more free time than medical professionals, as planning involves attention, major decisions and commitment.

For the skittish, “plan” conjures up images of thick, oppressive binders, lots of grueling reading and puzzling through myriad complexities late into the night. It’s true that making financial plans involves some study and considerable reflection, but a good financial planner (preferably, fee-based) can help simplify the financial complexities of retirement planning and investing. He or she should help you focus on making smart financial and investing decisions — not on selling you financial products or offering complicated advice.

A financial planner can help you identify your retirement possibilities, which may include a series of rolling retirements, where you move from one passion to the next. Perhaps you want to teach, volunteer your expertise to charitable organizations or pursue other endeavors you’ve long dreamed about. This requires a plan that can adjust to your life and goals as they evolve.

If you own financial products but have no real plan, here are three steps to get on track to purposeful retirement planning:

1. Take an inventory of all your savings, investment products and other assets that you may rely on for income in retirement.

2. Reflect on how you see your retirement years unfolding — whether you see yourself following a traditional retirement path or a having a series of rolling retirements.

3. Contact a qualified financial planner specializing in retirement-income planning to help you determine how best to incorporate and/or adjust your existing retirement savings and products into a cohesive plan that will provide direction and meaning to your financial and investment decisions.

Buying financial products with no real plan can best be summed up by the exchange between Cheshire Cat and Alice in the classic “Alice’s Adventures in Wonderland,” “If you don’t know where you’re going, any road’ll take you there,” says the cat.

Alice’s response, “so long as I get somewhere,” applies, as you will certainly end up somewhere with the financial products you’ve purchased. But without a real strategy or plan, it most likely won’t be where you intended. 

Eric C. Jansen, a Chartered Financial Consultant, is the founder, president and chief investment officer of Westborough, Massachusetts-based 

, which provides fee-only retirement-income planning and investment management services for high-net- worth clients nationwide.  

The information presented is not intended as financial advice, and you are encouraged to seek such advice from your financial advisor. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Keep in mind that investing involves risk. The value of your investment will fluctuate over 

 and you may gain or lose money. Diversification/Asset Allocation does not ensure a profit or guarantee against loss. Registered Representative/Securities and Investment Advisory Services offered through Signator Investors, Inc. Member FINRA, SIPC, a Registered Investment Advisor. AWM is independent of Signator. One Technology Drive, Westborough, MA  01581.

Odds are, you own some financial products, such as annuities, to help fund your retirement. But do you have a plan in place to retire? There's a big difference. Here are three steps to creating your retirement plan.

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After decades of historically low levels, interest rates are finally beginning to rise, a development that could torpedo the investment portfolios and finances of the unprepared.

But if you know what steps to take, you can contain the damage and keep your portfolio and your overall financial situation from taking on too much water.

As the economy continues to strengthen, the Fed policy of sustained low interest rates, designed to boost economic activity after the great recession of 2008, is likely coming to an end. Although the Fed has raised rates only twice in the last 10 years, the pace of rising rates is expected to pick up in 2017, with the Fed indicating upward of three rate hikes this year.

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Don’t Assess Portfolio Performance with the Wrong Gauge

Here are some points to consider when seeking to protect your portfolio:

Rising rates are generally bad news for your existing bond holdings. When interest rates rise, new bonds pay higher rates. Investors holding existing bonds, which are now paying less, are usually unable to sell them for their full value because higher paying alternatives are now available. 

You should review your current bond holdings to determine the potential damage as rates rise. A simple but effective way to estimate your risk is to look at your bonds’ duration — the approximate volatility (up and down price movement) of a bond or bond portfolio in relation to changes in interest rates. For example, a bond with a duration of 10 means that a 1 percentage point change, up or down, would raise or lower the value of the bond by about 10 percent. You read that right: If you own a bond fund or bond exchange traded fund (ETF) with underlying holdings that are 10, 15, 20 years or more in duration, you could lose 10, 15, or even 20 percent in value for every 1 percentage point rise in rates. If you own bonds with durations longer than two or three years, it might be prudent to exchange them for bonds with shorter duration If you own an indidual bond and don’t plan on selling it anytime soon, you might consider holding it to maturity, but prepare yourself for a rough ride until then.

Loading up on bonds as you approach retirement may not be a wise move. The traditional portfolio-allocation thinking has been that as you age, you need more stability in your portfolio to avoid potentially large losses from a steep stock market decline just before or during retirement. A long-cited rule of thumb holds that people should have a percentage of stocks in their portfolios equal to 100 minus their age, with the balance in bonds or other relatively safe assets. For example, a 60-year-old would have 60 percent of their assets in bonds and 40 percent in stocks. This formulaic approached may have worked well decades ago, but now that the nearly 30-year bull market in bonds may be coming to a halt, it may not work for many investors.  

If you’re approaching retirement, consider reducing risk by seeking alternatives to bonds. These include floating-rate funds; Treasury Inflation-Protected Securities (TIPS), which have an interest rate pegged to inflation; or an array of short-term certificates of deposit with maturities structured to overlap (known as a ladder).

If you’re planning to finance a new or vacation home, now may be the time. Consider accelerating your purchase decision to avoid higher interest costs. That may be inconvenient if you haven’t decided on what to buy, but buying right after a series of rate increases can bring regrets that can be calculated in real dollars — in the case of real estate, significant amounts over time.

If you’re still paying off student loans, particularly if they’re adjustable rate loans, now may be a good time to review your payment options. Unfortunately, many health professionals are still paying down debt, given the protracted nature of their professional educations. Rising rates mean you should probably try to get these loans paid off sooner rather than later. It’s a good peace-of-mind builder regardless of what rates do. If you have adjustable rate loans, consider refinancing now to lock in today’s low rates.

Rising interest rates can also affect your stock holdings. The initial phase of rising rates can be good for the stock market, as this generally indicate an improving economy, but rising rates are not good for stocks long-term — particularly when increases are sudden or in rapid succession. But if you know what you’re doing or get the right advice, you can take advantage of interest rate changes by rotating your holdings into sectors that tend to do well in a rising rate environment. These sectors include energy, financials, consumer discretionary, technology, industrials and materials. As the market begins to cool, after higher rates begin to take their toll, you may want to shift into more defensive sectors such as utilities, telecom, consumer staples, real estate investment trusts (REITs) and healthcare.

By monitoring interest rate trends, you can be prepared to adjust your portfolio that can help keep rising rates from reducing the size of your nest egg.

Discover more Dentist’s Money Digest Personal Finance coverage here

, is the founder, president and chief investment officer of Westborough, Mass.-based 

, which provides fee-only retirement-income planning and investment-management services for high net worth clients nationwide.  

The information presented is not intended as financial advice, and you are encouraged to seek such advice from your financial advisor. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Keep in mind investing involves risk. The value of your investment will fluctuate over time, and you may gain or lose money. Diversification/Asset Allocation does not ensure a profit or guarantee against loss. Registered Representative/Securities and Investment Advisory Services offered through Signator Investors, Inc. Member FINRA, SIPC, a Registered Investment Advisor. AWM is independent of Signator. One Technology Drive, Westborough, MA  01581. 

With the Federal Reserve expected to raise interest rates this week, you need to familiarize yourself with how the move may affect your investment portfolio. Fortunately, there are steps you can take to minimize the damage. Historically, rising interest rates have been bad news for bond holdings. Start by reviewing your current holdings.