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The Bucket System

The Bucket System concept has been around for a while in one guise or another, but it has been popularized by a San Diego Financial Planner named Raymond Lucia in his book 'Buckets of Money - how to retire in comfort and safety'. The same basic idea in more technical papers uses the term 'bridge' instead of 'bucket'. The concept is quite different from the traditional way of thinking about investing during retirement.

Traditionally, investors in retirement are facing shorter time horizons and thus have less time to recover from a down market. This is handled by increasing the investments in 'safe' investments, perhaps using the rule of thumb of 'investing your age in bonds'; for example if you are 65, you would invest 65% of your assets conservatively.  With improved health and increasing lifespans, the rule has been stretched to 'investing your age less 10 in bonds', so a 65 year old would invest 55% conservatively. This is an admission of the problem with this approach....

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Is your advisor a 'Fiduciary'?

The word you should be hearing and thinking about when it comes to financial planning or investing is FIDUCIARY. This is a difficult word, so it's not much used by the media, but it's much more important than terms they do use often, like 'fee-only'.

'Fiduciary' is also a word you will never hear spoken on Wall Street - to those guys it's like Kryptonite. Until the court case Financial Planning Association v. SEC, March 2007, brokers for Wall Street firms had an exemption from the consumer protections of the Investment Advisors Act of 1940, allowing them to offer advice without full disclosure or fiduciary duty. They were able to avoid mentioning pesky details like the conflict of selling proprietary products with ridiculously high sales charges (loads) and disclosing for whom they were actually working - their employer, not you!

You want your investment advisor to have the "duty of care of a fiduciary," which includes:
    Putting the clients’ best interests...

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Say Goodbye to the 'Eighth Wonder of the World'

Retirees are great travelers, wanting to see as much as possible before airline carbon credits get too expensive. One thing they most likely won't be seeing in retirement is the 'Eighth Wonder of the World'. Mark my words, this is one of the most important articles I will ever write and that you will ever read. It is the key to understanding the difficulty of retirement financing.

Albert Einstein referred to compound interest as the Eighth Wonder of the World. Interest compounds when the interest in savings in one period itself earns interest in successive periods. It takes time to get going, but once it does, the account balance literally takes off and increases exponentially. Before retirement, when you are earning and saving, compound interest is working for you, increasing your wealth.

Compound interest, and reinvesting your returns, results in some big numbers over time. Inflation also compounds, robbing those numbers of real purchasing power. With investments that return more...

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