April 28, 2021
Retirement Income Planning Using the “Bucket Plan” Concept
There are two key ingredients that are viewed as really the foundation of moving into retirement and beyond. These two, pieces to the foundation are creating the legal entity, the legal structure. That’s estate plan, the will, the trust and then the second piece of it, and this is really what gives people a lot of peace of mind as it relates to moving into retirement is creating that income plan.
Join Chris Berry in this episode where he shares the retirement income planning using the “Bucket Plan” concept.
In this episode, you’ll learn…
- Chris’ positive focus for the week
- My book on building that retirement and legacy plan
- Creating a clear retirement legacy blueprint
- Income planning as a foundation
- Accumulating money and saving to retirement
- The Bucket Plan
- Sequence of return and risk
- Structuring the income plan
- Distribution and preservation phase
- Organizing your assets
- Widow’s Penalty
- Structuring retirement in terms of time horizon
- Money over the next 10 years
- Interest Rate Risk
- 60/40 Investment
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This is The Chris Berry Show, expert information on wealth estate and tax planning for the second half of life. Information that you can understand. Here’s your host, Chris Berry.
Hey everyone. This is Chris Berry with The Chris Berry Show. And today, we’re going to start with a positive focus, just like we do every time we do the show. And on the rest of the show, what we’re going to talk about is retirement income planning and a approach looking at different time horizons. Because I think we can’t necessarily control what the market’s going to do. It’s going to go up and down. But there are certain things we can control and we can look at divvying up our assets into different buckets to create income streams. So we’ll talk about that.
But first, I want to start with a positive focus, something positive that happened over the previous week or so. And my positive focus this week is that I completed the rough draft of my second book that I’ve written. My first book being The Caregiver’s Legal Guide, which really mapped out a strategy for long-term care and looking at trusts as a way to protect against long-term care costs. And also if you have a loved one who needs care now, kind of last minute strategies utilizing long-term care insurance, or Medicaid, or veterans benefits, and how to find the best care possible.
My next book, it’s all about building that retirement and legacy plan. Building a retirement and legacy blueprint, mapping out what your retirement’s going to look like. Taking into account the five key areas of income planning, investment planning, tax planning, healthcare planning, legacy planning. Not just for your retirement, but also what you’re leaving to the next generation. So it’s really a great guide for overall planning.
So my positive focus is that I completed the rough draft, sent it over to the editor, and waiting to get that back. So it’s pretty exciting. This is my second book. My first book I think I completed in 2014 or 2015. And I don’t know if you’ve ever written a book, but it’s a long process. There’s a lot that goes into it. So pretty excited to have my second one kind of off to the editor. I’m sure it’ll come back and we’ll have some changes and stuff. But I’m looking forward to having that published by the end of the year. That’s one of my goals for this year.
Now today, what we’re going to do is we’re going to talk about a piece of that puzzle. So if you look at creating a retirement legacy blueprint, you break it into those five areas of income planning, investment planning, tax planning, healthcare planning, legacy planning. Then looking at income planning as one of the foundations. And really, I think there’s two really key ingredients that I view as really the foundation of moving into retirement and beyond. And those two pieces to the foundation are creating the legal entity, the legal structure. That’s that estate plan. The will, the trust, things like that. And then the second piece of it, and this is really what gives people a lot of peace of mind as it relates to moving into retirement is creating that income plan.
Now that I’m retired, how are we going to look at replacing those paychecks, right? Because you’re going to have certain expenses. And we need to figure out how much income do you need per month, or how much income do you need for the year. And for a lot of my clients while they’re working and they’re in this accumulation phase in life, they didn’t think about using the B word. The B word being a budget, right? They just had money coming in. They covered their expenses, they saved a little bit or saved a lot. And they didn’t really have to worry about expenses or a budget.
And then as you move into retirement, now when we’re putting together a plan, one of the first questions we ask is, “Okay, well how much money do you think yet you need versus how much money do you think you want?” And there might be a difference there. But that’s a starting point.
So that’s really what we’re going to talk about today is how to create a income plan in retirement. And more specifically, one of the things that we do is we need to understand that there’s a mindset shift of now, we’re moving into a different phase of life where initially, it was all about accumulation. So while you’re working, it’s all about saving as much money as possible, banking as much money as possible. And there are certain strategies about where do you save it. Do you save it all in traditional 401(k)’s, pre-tax accounts? Do you save it in post-tax accounts? Do you save it in tax-free accounts? And there’s a lot of questions and things to think about, about where you’re accumulating wealth. Especially as I’m sitting down with a lot of retirees and all their money is sitting in these pre-tax accounts, and now they’re looking at it, “Oh my God, I have a huge tax bill. And this retirement tax time bomb is about to blow up in my face as I have to start taking out RMDs and stuff.”
So if you’re accumulating wealth or if you have children that are accumulating wealth, make sure that they understand that maybe all the money shouldn’t be saved in those pre-tax accounts, 401(k)’s, IRAs. Maybe look at diversifying kind of the tax buckets of where we’re saving the money.
But again, that’s not what we’re really talking about today. Today, we’re talking about moving from that accumulation stage where we’re saving money to retirement, where we call this the preservation and distribution stage. So all of those assets that you’ve worked so hard to accumulate during your lifetime, now we need to come up with a strategy of how do we use those assets plus whatever fixed income sources you have in retirement to cover your income and expenses throughout the rest of your retirement.
And this is really what people are concerned about when we’re talking about, “Can I retire? Will my money last as long as I do?” Or you do. And it’s all about creating that income plan and utilizing those assets not for just growth and accumulation, but now adding in the fact that now, we need to turn those assets somehow into income to cover any type of income gaps that we have.
So I collaborated with a colleague of mine a few years ago to coauthor and write the introduction to a book called The Bucket Plan, which I think is a very innovative, not necessarily unique, but a good way to think about transitioning your assets from this accumulation world to now a preservation and distribution. Where now, we’re not looking at trying to maximize returns. It’s all about maximizing your assets to make sure they last as long as you do, and taking a look at things that we can control.
So a big part of this is understanding time horizons. And this is very important as we’re moving into retirement is to understand different time horizons. So breaking up your assets and everything you worked so hard for into different buckets based on when we think we’re going to utilize that money or need that money.
And then based on that, that’s going to give us instruction on how those investments should be put together. Because typically when you’re accumulating wealth, you might have a couple of different accounts, but it’s all geared towards just growth. You want to grow as much as possible. And then as you get near retirement, maybe you get more conservative. And I see a lot of people in these kind of target funds where my investments are at Fidelity and it’s a target fund 2025 or 2030. That automatically as I get closer to retirement, it shifts more of the equities to bonds, right? And that’s a whole nother discussion getting into investment planning and what’s wrong with those target funds. A big thing is all the expenses hidden inside of those. The expense ratios on those are crazy.
The second thing not to get off track is a lot of times, they’re shifting the bonds which right now if you look at your mortgage rates and the interest rate is super low, well guess what? That is also affecting your bond. So maybe that bond portfolio that you’re shifting towards as you get near retirement isn’t the best route to go. But that’s an aside.
So the idea is that as we’re getting near retirement, you might have everything kind of bucketed in one bucket of just growth and accumulation. Well now as we move into retirement, all of a sudden those paychecks go away, those wages go away. Now we’re going to have to start structuring our assets potentially to be able to draw on. And now, we face some different risks. One of those big risks that I’ll get into is what’s called sequence of return and risk. So there’s a process figuring out how should we structure this income plan.
So like I stated, I wrote the forward along with someone else who’s relatively famous in the investment world, Ed Slott. So Ed Slott, myself wrote the foreword. My colleague, Jason Smith wrote this book called The Bucket Plan. In my preface that I wrote a couple of years ago, that’s part of The Bucket Plan. So we have some of these books that are available. We’d love to send you a copy while we still have them available at our office. All you have to do is give us a call and leave your name, and email, and address, and we’ll mail you out a copy. Phone number is (844) 885-4200. And again, what we’ll do is we’ll send you a free copy of The Bucket Plan that talks about protecting and growing your assets for worry-free retirement where we talk about creating a plan that’ll free you from worry, stress, and confusion as you move into a retirement.
And really, what it is is talking about understanding that we’re going from an accumulation phase in our life to now distribution and preservation. And these assets that we’ve earmarked completely for growth and accumulation, now we need to structure them in such a way that sure, they can offer us some growth. But also now we need to cover our income. Okay? And that’s what we cover in The Bucket Plan. So if you do want a copy of the book, just give our office a call at (844) 885-4200. Make sure to leave your name, email address, and address to mail out the book. And we’ll put it in the mail for you. As long as we still have copies left at our office. When I worked with Jason and Ed Slott to put together this book, I had a certain number that they shipped to my office. So I’ll have my team just mail those out to you. But again, you have to let us know that you want a copy. You have to raise your hand.
So in the book, I’ll just tell you a couple of things that we talk about before we get in to income planning in the next couple of segments. But first, we talk about some of the big risks that are faced in retirement. And we’ll get into this on the show today. But market risk, and interest risk, and a big one is sequence of return risk.
And then in the book, we talk about the idea The Bucket Plan of looking at time horizons for how we should structure our investments and how we should have maybe a now bucket that will cover our next year, a soon bucket. And then also, a later bucket of money that’s geared towards growth and potentially legacy. And we’ll talk more about that.
And then also in the book, we talk about behavioral finance and some of the worst mistakes investors make on their own, and why it’s important to work with an advisor on how to avoid a lot of those mistakes. A big one is trying to get into market timing. We saw this this past year there with a lot of the GameStop and everyone moving to the Robinhood investing. And in the day trading where for every one story of someone walking away with plus 400,000 on their investments, there are a lot of people that lost a lot of money trying to time the market.
And then in the book, we talk about some of the basics of financial planning. Of creating a asset sheet, understanding what our assets are. Understanding how much income we need in retirement, and whether we have an income gap. And then talking about volatility and how much risk we are willing to take on in our different buckets. Whether it’s that soon bucket or that later bucket. Because again, based on time horizons, potentially we should be looking at investing in different amounts of risk depending on when we think we might need to access those funds. Because we can’t necessarily control what the market’s going to do on a daily basis. But what we can control is we can control things like time horizons. We can control when we’re going to access certain funds and when and how we’re going to access that.
So it’s things like should we be drawing down our IRA first? Or should we be drawing down our Roth IRA first? Or should we be drawing down our brokerage count? Or if we have a IUL or LIRP which is cash [inaudible 00:13:44] life insurance or life insurance retirement plan. Should we be drawing that down? Right?
So it’s allocating and understanding that we have these different assets and investments that we worked hard to accumulate during our life. And then it’s all about figuring out how do we A, preserve those. And then what is our distribution plan for retirement? So what order do we start drawing on those assets in retirement to put us in the best position possible to make sure that A, our money lasts as long as we do. And then B, if legacy planning is important, how do we make sure that we can leave as much to the next generation as efficiently and effectively as possible?
So if you do want us to send you a copy of The Bucket Plan book where we talk about protecting, growing your assets for worry-free retirement. And again, I wrote the preface for this. The foreword was written by Ed Slott. Who’s well-known in the tax world. And this was written by a colleague of mine, Jason Smith. Then we’ll go ahead and send you a free copy as long as we still have copies at our office. But all you have to do is give our office a call at (844) 885-4200. And leave us your name, address, email address, and phone number. And then we’ll make sure to mail out a copy of the book at no cost to you. So again, all you have to do is raise your hand and say you want a free copy of the book, and then we’ll go ahead and mail that out to you.
And also another resource if you want to learn more about our approach would be to join us every Wednesday at 1:00. So every Wednesday at 1:00, we have a weekly wisdom webinar. And you can find out more information about this at our website castlewealthlegal.com, where I had people submit questions ahead of time or ask questions live on the webinar. And really it’s almost like open office hours where all I do is I sit there and ask questions that have been submitted ahead of time, or ask questions or clarify answers live via that webinar. And you can go ahead and register. We do them every Wednesday at 1:00. And then also they’re recorded. So if you have questions on income planning, investment planning, tax planning, healthcare planning, long-term care costs, legacy planning, estate planning, that’s really the best way to just build up your knowledge is by attending one of our weekly wisdom webinars. And all you have to do is go to castlewealthlegal.com. Right on that front page, there’s going to be information to register for one of our webinars. And stick with us as we continue this conversation. We’ll get into income planning for retirement.
Hi, we’re Madison and Ryan Berry.
Our dad is Chris Berry from the Castle Wealth Group.
The Castle Wealth Group used to be The Eldercare Firm, but dad wanted the company to be broader in its scope of services.
To not only protect and preserve assets, but to help people grow their assets to prepare for retirement.
As a certified elder law attorney and fiduciary financial advisor, our dad and his team at Castle Wealth Group can help you with lots of important things.
To tell you more, here’s our dad Chris Berry.
Thanks, Maddie and Ryan. Here at the Castle Wealth Group, we can help you put together an estate plan to avoid probate, work with you on a tax plan to keep more money for your family and less for Uncle Sam, and protect you against the devastating cost of long term care. Our team is here for your family. I invite you to learn more about the Castle Wealth Group at our next free workshop, where you will learn the three steps to create a legal, financial, and tax plan for the second half of life. Call us today to register at (844) 885-4200.
The Castle Wealth Group, formerly The Eldercare Firm.
Learn more at the castlewealthgroup.com today.
All right. So we’re talking about income planning. And income planning fits into one of the five key areas of a retirement legacy blueprint. That being income planning, investment planning, tax planning, healthcare planning, and legacy planning. So income, investments, tax, healthcare, and legacy. All five of those areas need to be addressed as you’re moving into retirement to plan for your retirement. And then also, officially and effectively pass whatever it is to the next generation or to friends or family versus leaving it to probate courts, etc. State of Michigan, wherever else. Right?
So today, we’re focusing on income planning. And we have a great resource that talks about organizing your assets so that now, they’re not so much geared towards accumulation like they were while you’re working. But now, we need to organize everything you work so hard for to preserve it, and also to help create an income plan in retirement. And that’s where we have the book called The Bucket Plan: Protecting and Growing Your Assets for a Worry-Free Retirement. Foreword was written by Ed Slott. I actually worked with Jason Smith who wrote the book, and I wrote the preface for the book. And we have some extra copies in our office. All you have to do is raise your hands, give us a call and say you want a copy, and we’ll go ahead and mail a copy out to you. Just give us a call at (844) 885-4200 or feel free to go to our website castlewealthlegal.com. Just put in your information. We can mail a copy out. As long as we still have copies available. we do have a box left. So we’d like to get those out to you.
But yeah, so we’re talking about income planning, which really is one of the foundations. And I think for a lot of people, one of the things that once we create that income plan for them, they have so much peace of mind. You can just see the stress evaporate from their face, because we’ve mapped out a plan of how they’re going to move into retirement and have all of their expenses covered in retirement. It’s one of those epic questions of do I have enough to retire, right? You might’ve seen some of the commercials by some of the big box financial places, like, “What’s your number?” And this type of thing. Well, it really depends. It really depends on creating an income plan. It’s not about I need to save to a million dollars. It’s all about developing that income plan.
So there’s different things that go into that income plan when we’re putting that together. We look at social security. When are you going to time social security? Social security maximization. Especially with married couples, there’s so many different options. Should the higher earner take social security early? Should they take it later? What happens if one spouse passes away? These are all questions that we answer as we go through our process.
Second, looking at an income and expense analysis, right? And this is one of the foundations of creating that income plan. And we talk about this in the book is figuring out what is that income gap if we have one.
And what we’re talking about here is looking at your fixed sources of income, which might be social security, might be pension. Pensions are starting to go away, versus your expenses, right?
So in the past, we always had this three legged stool of income. It would be social security, pension, and then you could draw on your assets. Well here’s the thing, your pensions are going away. So there goes one of the legs of the stool. A lot of people are uncertain about social security. So let’s cut that one in half. Now we have our assets. So instead of having a three-legged stool, we have a one and a half legged stool. Right? So how do we kind of balance that moving into retirement, right?
So we start with that income gap where we look at okay, how much income do we have coming in versus what are our monthly expenses? And then based on that, we might have an income gap that we now need to figure, right?
So let’s say we have a combined social security and pension of $3,000 a month, but our expenses are $5,000 a month, right? So that means that we have an income gap of $2,000 a month. Well, how do we draw on our assets in such a way to cover that? And that gets into some of the risks that we have moving into retirement, like sequence of return risk. Because now, we’re moving into a completely different world, where initially it was all about accumulation. Well once we have to start drawing on our assets, then we need to think about preserving it. Because we don’t want to draw on assets that are going down because of market volatility, right? That’s where we’re getting into one of the big risks, which is called sequence of return risk.
So calculating that income gap so that income and expense analysis is a key ingredient in income planning. Next inflation planning, right? So the cost of bread is always going up, right? So you see this as it relates to social security. Every year, you get some type of bump in terms of your funds, unless its zero. But on average, your social security goes up about 2.5%. So that’s to take into account cost of living and inflation, right?
So I sat down with people that have a ton of money sitting in cash, like $500,000 sometimes sitting in cash. Well, that’s great. That money is not going anywhere. It’s safe. You’re not going to lose it to the market. But understand with inflation, you’re actually losing out. You’re losing to inflation. So what can we do to still give you safety, but build in protection against inflation, right? We shouldn’t have all of our life savings just sitting in a checking and savings account because we’re missing out on the growth to at least keep up with inflation.
And then next is a key ingredient. And this is something that a lot of couples overlook. And that’s taking care of that surviving spouse. Okay? So what we’re talking about here is making sure that when one spouse passes away, that surviving spouse is still in a good position. And I’m not just talking about adding extra life insurance or anything like that. But just think about it. Think about all the things that happen when one spouse passes away.
One of the biggest things, and this is something that Ed Slott who’s known as kind of America’s CPA, really well known in terms of retirement income tax planning from a tax perspective, he calls this the widow’s penalty. Because when one spouse passes away, you go from a married filing jointly tax bracket to now a single filing. And now that surviving spouse probably needs the same amount of income, but now they’re going to have to pay almost double in terms of taxes potentially because they went from a married filing jointly tax bracket to now a single filing. Right?
And then also, what happens when one spouse with social security disappears? Or depending on how you took that pension, what happens when that pension disappears? Now that surviving spouse might have the same level of expenses. But now, the social security is cut in half maybe, the pension has went away, and now taxes have went up.
These are all things to think about that when I bring these up with married couples, a lot of them, they haven’t put a ton of thought into it. They just think that well if one spouse passes away, everything goes to surviving spouse, they’ll be taken care of. Yeah, the assets might. But what about that income plan for that surviving spouse? What about that tax plan for that surviving spouse?
So there’s certain things to think about when you’re a married couple, especially from a tax perspective. If you’re listening to this and you’re sitting there and you have pre-tax accounts like IRAs, 401(k)’s, then we need to look at a tax plan not just because we know taxes are going up, but we need to look at it from a income plan for that surviving spouse to make sure that that surviving spouse isn’t going to be killed having to pay taxes on the same amount that you needed while you were a married couple.
So spousal planning is one of those things that we see overlooked a lot of times when people are kind of handling this themselves or doing it themselves. And we bring this up. And trust me, I’ve sat in on so many meetings, and I’ll have a husband and wife. And not to stereotype, a lot of times it’s the husbands that kind of manages the assets. Maybe the husband’s an engineer. But then I bring this up, and then the surviving spouse, their eyes get wide. They’re like, “Yeah, I need to make I’m taken care of.” Right? So understand that’s something to think about as well in terms of income planning.
And then the last thing in terms of income planning that we talk about when we’re just focusing on the income planning piece. Again, income planning is just one piece of the puzzle. But the last piece of income planning is to look at longevity. And longevity is one of the biggest risks. Because it reinforces, it makes every other risk that much more important. Because the longer you live, the more there’s a chance of needing long-term care costs. The longer you live, there’s more of a chance we need to make sure your money lasts as long as you do. The longer you live, the more taxes are going to come into play especially when you talk about required minimum distributions. The longer you live, the more we need to be concerned about market volatility and sequence of return risk.
So this is something that I’ve seen over the last 15 years of doing this is initially when we first started, a lot of times people were thinking, “All right, we need to make sure that this plan lasts to age 75 or 80.” Well, guess what? Now I’m sitting down with people and we’re making sure this plan lasts to age 100, right?
So it’s almost a different mindset. And understand that there’s different approaches to that income plan. And this is something we talked about on that wisdom webinar that we had today. I’m recording this on a Wednesday and we’re airing it on a Sunday. But one of the things we talked about on our wisdom webinar that we just had was the idea of the 60/40 portfolio and the idea that okay, I’m just going to take out 4% a year and I’m going to be okay. Well, guess what? That 60/40 portfolio, there’s plenty of studies to show that that’s not the magic bullet that everyone thought it was. A big reason for that is because of bonds and interest rates. Right? And especially if we’re concerned about longevity and making sure this plan lasts to 100, if there’s a better way to do things to make sure that money still gets a good rate of return but still can cover income. Guess what? That 60/40 portfolio probably isn’t the way to go, because that 40% you’re putting in a bonds right now, bonds are really one of the last things you want to be invested in right now.
Because A, what we found is they’re not a great hedge against the volatility of equities. And there’s plenty of studies to show that now. The correlation is kind of scary when we thought before that they were opposite correlation. That’s not true anymore, especially in this low interest rate environment.
And then B, with interest rates where they’re at, I have a lot of clients. And if you have a mortgage right now, or looking to refi, reach out to us and we can get you in touch with our mortgage expert. But right now, mortgage rates are super low. So that’s a great thing for mortgages where you can refi and get a two or three or less than 4% mortgage right now. Guess what? That’s killed your interest rate on CDs, your bonds are getting killed. So that’s where a lot of times, we’re looking at bond alternatives to put together an investment strategy so that this money that you’ve worked so hard for lasts at least as long as you do.
So this is where your investment strategy kind of goes along with your income plan. Is first, a lot of times we have to identify how are we going to handle your investments from an income standpoint? And this is where we get into the bucket plan of all right, let’s put these different investments that you’ve worked so hard to accumulate. Let’s put your nest egg and divvy it up amongst different buckets based on time horizons.
And this is what we talk about in The Bucket Plan. Well, let me talk about The Bucket Plan, just kind of big picture a little bit. So the idea is that we break things up based on time horizons. So first, we want to have what we call a now bucket of money. This is money that we think we might need over the next year. And this is going to be made up of a couple different things. And if you have a pen and paper, now’s a great time to take some notes if you haven’t.
So in that now bucket of money, really it’s covering our next year’s worth of income and expenses. So what should be sitting in that now bucket would be whatever your emergency fund is. And that might be three to six months worth of expenses. Okay?
Then second, it would be whatever big expenses you have coming up throughout the year. So if you’re looking at taking a big trip, or fixing up the kitchen, or you have to get a new roof, or you have a daughter that has a wedding coming up within the next year. That money should be safe and liquid and sitting in checking and savings. You don’t want to lose that. You want to get access to it.
So that now bucket should be invested in checking, savings, money market. It should be safe and liquid. Because it’s going to cover your emergency funds. It’s going to cover any big expenses. And then here’s where we get into this income, and distribution, and preservation plan and The Bucket Plan. It also should cover whatever your income gap is for the year.
So like I talked about, if you have a income of say $3,000 a month and your expenses are $5,000 a month, you have a $2,000 a month income gap. Well, we should have that multiplied by 12. So 24,000 should be sitting in checking, savings, and available to cover whatever your income needs are for the year.
So your now bucket should be sitting at the bank and should be your emergency fund, any big expenses you have planned for the year, and then whatever your income gap is for the year. Everything else should be really probably out of cash. And the reason for that is that will buy you a year of if whatever happens, so that buys you a year time horizon. Then the rest of your investment should be invested either in your soon or later bucket, where now we’re at least keeping up with inflation. because guess what? When you invest in just safety and liquidity, investing in that now bucket where the money is sitting at the bank, you’re not getting really any growth. In fact, you’re falling behind with regards to inflation and cost of living.
So that’s why we don’t want to see a ton of money sitting in cash. It really should be allocated to one of three things. Either your emergency funds, which typically three to six months worth of expenses. Maybe 30 to $50,000. Second, any big expenses you have coming up for the year, okay? Are you fixing up the kitchen, going on a big trip? If you can travel. Getting a new roof, a new septic, whatever it may be.
And then third, if you are retired, you may have an income gap. So take a look at what that is monthly, forecast that out for the year, and that should be sitting in checking and savings. And that’s something we talk about in the The Bucket Plan book, which more than happy to send you a copy. Just give our office a call at (844) 885-4200. Or just go to our website castlewealthlegal.com, click through, contact us there, and you can request a free copy. And as long as we still have copies available at our office, we’ll mail it out to you at no cost.
Hi. Madison and Ryan Berry here from the Castle Wealth Group, formerly The Eldercare Firm.
Our dad is Chris Berry.
He’s an attorney and fiduciary financial advisor, which means he helps families plan, protect, and preserve their assets.
The entire team at the Castle Wealth Group can help you with lots of important things. To tell you more, here’s our dad Chris Berry.
Thanks, Maddie and Ryan. Here at the Castle Wealth Group, we can help you put together an estate plan to avoid probate, work with you on a tax plan to keep more money for your family and less for Uncle Sam, and protect you against the devastating cost of long term care. Our team is here for your family. I invite you to learn more about the Castle Wealth Group at our next free workshop, where you will learn the three steps to create a legal, financial, and tax plan for the second half of life. Call us today to register at (844) 885-4200. (844) 885-4200. Or visit us at castlewealthgroup.com.
The Castle Wealth Group, formerly The Eldercare Firm.
Learn more at the castlewealthgroup.com today.
So we’re talking about income planning and how that fits into the retirement and legacy blueprint. And remember, there’s five key areas we always focus on. Income planning, investment planning, tax planning, healthcare planning, and legacy planning. And in terms of income planning, a lot of it is looking at just rethinking or taking another look at how you’ve invested your assets. So understand that while working, you’re in accumulation phase of your life. But now you’ve reached the top of the mountain, and we need to figure out how to get down that mountain. And now it’s all about preservation and distribution. So some of the skill sets used in accumulation, some of the tools, maybe even some of the advisors you used in that world, now we need to think about it from a different perspective. And maybe we need to rethink some of the tools, strategies, or even advisors that we utilize to make sure this money lasts as long as you do.
And there’s really two major foundational pieces as it relates to moving into retirement that everyone needs to really nail. And you kind of only have one chance of getting this right. And those two pieces are your income plan and your legal entity plan or your estate plan. The reason why we talk about the legal entity whether it’s a trust or will, that’s the legal structure that a lot of your retirement and what you leave as a legacy, that’s kind of your rule book. So you need to create your own rule book. And then the second piece of that is that income plan. That’s really the foundation. That’s going to give you the peace of mind to know that you can retire in the first place is having a well-developed income plan.
And that’s important. That’s something that we don’t see a lot of people doing. where if you go to a lot of these investment advisors or broker dealers, they’ll talk about getting your rate of return and that type of thing. But they’re not going to map out a true income plan. And that’s what happens when you’re working with a true holistic advisor where we’re focusing on income, investments, tax, healthcare, and legacy to put together a comprehensive plan versus just going to one of these vendors where you can log on and buy some mutual funds, or someone sells you some stocks and bonds or put together a portfolio. That’s great, but that’s just a piece of the puzzle.
And really, what offers a lot of peace of mind, and comfort, and clarity, and confidence to a lot of people as they move into retirement, it’s not necessarily that investment plan. It’s really that income plan. So how am I going to draw on my assets in retirement?
And then the second piece is okay, now that we know how we’re going to structure these in terms of time horizons, how should we have each of these pieces invested, right? And that’s really what we’re talking about in terms of The Bucket Plan. So when we’re talking about The Bucket Plan, what we’re talking about is allocating these assets in such a way that we’re managing time horizons. So the first bucket which I talked about is your now bucket. And this is money that’s going to get you through the next year. That’s the time horizon. And that really should be just sitting at the bank or in cash.
Anything more than that probably should not be sitting at the bank or in cash. You probably should have that invested. Whether it’s geared towards liquidity and growth with no guarantees of safety. So when you invest in the market, or do we look at gearing that investment to safety and growth, but we have to manage the time horizons and sacrifice a little bit of liquidity? And that’s where we’re looking when we’re talking about putting together an investment plan.
So that income plan is really what drives the investment plan, because we need to allocate these assets, these investments in such a way that if we do have an income gap and we need to draw on these assets, that’s going to help us determine how we should invest those assets. Because of a lot of the risks that we have as we move into retirement. Now we need to be much more concerned about market volatility, because we don’t have as much time to make up money if we lose that money.
And really, the big risk now is sequence of return risks. Where if all of a sudden if the market goes down as you’re drawing on these assets, it can have a devastating effect on the rest of your retirement. So that’s why in terms of structuring your assets, we like to look at time horizons in this concept of bucket planning. Of having a now bucket, which is the next year. A soon bucket, which might be from year one to five or one to 10. And then a later bucket.
So that soon bucket, that’s geared towards your income needs over the next say five to 10 years. A lot of times, that should be invested maybe more conservatively than the money that’s geared towards your later bucket, which is more towards growth and legacy in long-term care.
So as part of our income planning, we’re trying to map out how are we going to structure your investments and how are we going to create income, taking a look at your social security, your pension if you have one, and drawing down on your assets, so that at least the next five to 10 years of your income, we know exactly where that money is coming from. And the money that we’ve allocated to this shouldn’t just be sitting in checking and savings because you’re missing out on growth. But instead, what we do is we look to investments that are safe, so protected from the sequence of return risk. But can create some income for you and still have growth. And yeah, all of those things are possible.
And then that frees us up so that the rest of your money can be geared towards that later bucket of money, which is more geared towards growth. So we’re more willing to take risks, because we don’t think we’re going to need that money over the next say 10 years or five to 10 years. That money can be geared towards legacy. So money that we don’t think we’re going to necessarily need while we’re alive. And maybe we want to leverage that money for the next generation. And then maybe this is money allocated to long-term care as well. So if this is money that we don’t necessarily need for retirement income, then that frees us up to maybe look at other things, whether it’s creating a legacy or leveraging this money for long-term care.
So it’s a very simple and straightforward concepts. And I like to start there big picture with a lot of my clients in terms of income planning. Now understand we have all the sophisticated software and running the numbers behind it. But it’s just a simple idea where we sit in our conference room or sit on a Zoom, and we can just whiteboard this out. “All right. We have all these different accounts. How might we allocate these big picture?” And then once we get some confidence and clarity in comfort with a overall plan, then we can run the hard numbers and talk about the tools and everything behind it, what specific investments. So it is a nice process to understand how to marry the income plan and investment plan as we’re moving into retirement. Because understand while we’re working, it’s pretty straightforward. Just accumulate as much wealth as possible. But as we move into retirement, now we need to figure out okay, how are we going to cover our expenses? Which assets should we draw on? And this is where the concept of time horizons and breaking things into different buckets like now, soon, and later makes a lot of sense.
And again, I wrote the preface for the book called The Bucket Plan, talking about protecting, growing your assets for a worry-free retirement. A colleague of mine wrote that, Jason Smith. And we have the forward from I think Wall Street Journal called Ed Slott, America’s IRA Expert. So there’s a lot of knowledge in this book, and I’d love to send you a free copy of it. All you have to do is give our office a call at (844) 885-4200. Leave your name, address, email, and phone number. And we will mail a copy out to you as long as we still have copies available. Again, it’s The Bucket Plan: Protecting and Growing Your Assets for a Worry-Free Retirement. And it outlined some of the concepts that I talked about.
And in the book we talk about in chapter one the three big risks or dangers that you face in retirement right off the bat. There’s multiple risks, but first one is market risk. Where if the market goes down right as we’re looking at retiring, then we’re going to be in a much worse position, right? We don’t want another 2008 to happen where we saw a lot of those 401(k)’s turn into 201(k)’s, right?
And the second big risk is interest rate risk. And this is what we’re experiencing right now, where bonds are just severely underperforming. It’s great in terms of your mortgage. But in terms of bonds or CDs, your interest rate, you’re getting on those fixed accounts, it’s horrible. So that 60/40 portfolio might not be the most optimized portfolio.
And then the third big risk is sequence of return risk. So this is looking at the idea of okay, as I move into retirement, now I have an income gap. How am I going to cover that income gap in such a way to make sure that I’m not pulling from assets or accounts that are going down in value as I’m trying to do this, right? So that’s where we look at structuring your investments to support that income plan.
And then in chapter two, what we get into is the actual philosophy behind this of the different time horizons. So the idea is that we’re buying a time horizon and we can invest the rest. So we have our now bucket of money to cover the next year’s worth of income. And then we have a soon bucket that’s invested maybe more conservatively and geared towards income for the next five to 10 years. And then we have that later bucket where we get into trying to maximize growth for the investments. Maybe looking at leaving a legacy, maybe looking at long-term care planning.
So that’s kind of the concept behind it. And some things that we do is we look at creating net worth statements. We look at how much income you have, and we take a look at whether you have an income gap. And then we take a look at how much risk are you willing to take on in your portfolio. So those are all things that we do as part of our holistic retirement and legacy blueprint process. And we think this idea of The Bucket Plan is an innovative way to really simplify income planning. Because there’s a lot of different approaches. There’s a lot of different strategies. There’s that 60/40 investment strategy where we’re taking out 4% relying on dividends, right? But again, dividends are one of those things that they’re not guaranteed. They don’t give you necessarily the best peace of mind, because what happens if the value goes down or they’re not shooting off the dividends? Plus from a tax perspective, it’s not necessarily the most efficient from a tax perspective either. So there’s different strategies as it relates to income planning.
And again, income planning fits into that holistic approach of looking at building a retirement and legacy blueprint of looking at income, investments, tax planning, healthcare planning, and legacy planning. And if you’re not fully confident in all of those areas, then give our office a call. And what we’ll do is we’ll have a visit. Whether that visit is in person face-to-face, or that visit is over a phone call or a Zoom meeting, where really it’s just about you asking questions of me. I ask questions of you. We figure out where you’re at, we figure out where you want to go. And we figure out if we’re a good fit to help you get there. And if that’s something you’re interested in, give our office a call at (844) 885-4200. And we can schedule just that initial visit. As long as you mention that you heard this on the radio show, we won’t charge you anything for that initial visit. It’s really just to get to know you meeting where I figure out where you’re at and I figure out where you want to go. And I’ll try to give you some strategies on the call, or on the Zoom, or face-to-face to help you get there. And then you can decide whether you want our assistance or not.
But again, if you are interested in that or you want us to send you a free copy of that Bucket Plan book while we still have copies available, just give our office a call at (844) 885-4200. Or feel free to visit us on the web at castlewealthlegal.com. And if you say, “You know what Chris, this has been a great show. I’m looking for something a little more interactive.” Then what we have for you is a weekly webinar every Wednesday at 1:00. And you might not be available for it, but I still suggest you register. You’ll be notified. And then also, we always record these and they go up on our YouTube channel as well. But what we do on these weekly wisdom webinars is I just answer questions that people have submitted, either via email or while I’m live on the webinar where we talk about income planning strategies. We talk about investment strategies. We talk about tax planning. This last one, we talked about this unique opportunity based on where estate taxes are and the Trump Tax Cuts and Jobs Act, and how they might be repealed. And how Bernie Sanders just proposed lowering that estate tax even further. And how there’s things that you need to do if you have an estate tax issue to minimize estate taxes before those changes in law happen, which could happen as soon as next year.
So again, there’s certain things that you have to take advantage of now because this window of opportunity, especially from a tax perspective is closing. We talked about family inheritance trusts and how we can move money out of your estate now so that it’s not calculated in that estate tax exemption amount that’s going to drop as soon as Biden or Bernie Sanders gets their way.
And that’s just one of the things that we cover on a weekly basis on that wisdom webinar where I just log in and answer your questions. I have a whiteboard. we’re drawing things out. We’re kind of doing things on the fly. And last time, I think we had 40 plus people on it. So a lot of people find value. I do invite you to register. All you have to do is go to our website castlewealthlegal.com. There’ll be a place to click over, and you can register for one of our weekly wisdom webinars. And you can also go to our YouTube channel that has a lot of our past webinars if you want to get a flavor for what we’re talking about.
Okay. So again, this week we talked about creating that income plan. And a lot of it is figuring out what is that income gap if we’re going to have one in retirement, and then creating a preservation and distribution plan based on your assets to cover whatever that income gap is. Now, you might be listening and saying, “You know what, I don’t even have an income gap.” And that’s great. I have clients who maybe they’re veterans and they’re receiving the VA benefit. Just the other day, I was working with a family, a husband, 100% disabled. So he’s getting $3,200 a month from the VA, plus each of them are also getting their social security. So they don’t necessarily have an income gap. And first of all, I saluted him and thanked him for his service. But in his situation, there wasn’t an income gap. So that was less of a concern. So now we’re more focused on managing the investments for their retirement, but also what are we leaving as a legacy to the kids? So every situation is a little bit different. I’m not saying everyone has an income gap but that’s really what we need to start with is understand that okay, if you do move into retirement, will there be an income gap? And how do we cover that?
If there’s not, that’s great. But if there is, we need to address that. And typically, that’s one of the first things that we address as part of our retirement and legacy blueprint process along with creating that legal entity. And we want to create that legal structure that’s going to give us the rules for retirement and legacy. And then we want to create that income plan to make sure that we know that we can retire in the first place. And then the other pieces of the puzzle kind of fall into place. The investment plan, the tax plan, and the health care plan once we put together that income and that legal entity planning. So hopefully, this has been helpful this week. If you want a copy of that Bucket Plan book, we’ll send you a free copy. Give our office a call at eight (844) 885-4200. You want to see how this applies to you? Give our office a call, mention that your listen to the radio show, and we’ll get you scheduled. Make it a great week. Take care. Bye bye.
Learn more about Chris Berry and how he can help your family by visiting online at thechrisberryshow.com. That’s thechrisberryshow.com. You can also call Chris Berry at (810) 355-2584. That’s (810) 355-2584.
This program content reflects the opinions of Chris Berry and his guests, not Castle Wealth Group or Advisors Excel, and is subject to change at any time without notice. Content provided herein is for informational purposes only, and should not be used or construed as investment or legal advice, or a recommendation regarding the purchase or sale of any security, or to follow any legal or tax strategy. There’s no guarantee that the strategist’s statements, opinions, or forecasts provided herein will prove to be correct. Past performance is not a guarantee of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. All investing involves risk, including the potential for loss of principle. There’s no guarantee that any investment plan or strategy will be successful. We recommend that you consult with a professional dedicated to your needs. This program is furnished by Chris Berry and Castle Wealth Group.