28 Jun

Try the Bucket Approach

Constructing a portfolio this way may help you ride through a bear market in retirement.
Provided by Jeffrey C. Hamm

Stocks sometimes retreat. That reality can be overlooked in a long bull market. Bear markets do appear, and a deep downturn could force you to sell securities in retirement, so you can pay for necessary expenses.

Right now, you might have too much money in stocks. Years of steady gains may have unbalanced your portfolio and heightened your risk exposure. If you are 60 or older, that constitutes a warning sign, especially given this bull market’s age. What would a downturn do to your retirement fund and your retirement income?

If you are wondering how to respond to this risk, consider the bucket approach to retirement income planning.

The bucket approach may help you through different market cycles in retirement. This investing strategy, credited to a Florida financial planner named Harold Evensky, has simple and complex variations. It assigns fixed-income and equity investments to different “buckets” with the goal of providing sufficient cash flow to retirees during different stages of their “second acts.”1,2

The simplest version involves just two buckets. One holds the equivalent of 1-5 years of cash reserves (in deposit accounts and/or fixed-income investments), and the other holds everything else in the investment portfolio. When you need to fund your expenses, you turn to the cash and the fixed-income vehicles and leave equities untouched. Rebalancing your portfolio (that is, selling investments in an overweighted asset class) lets you increase the size of your cash bucket.1,2

Other versions of the bucket approach have longer time horizons. In one variation designed to be used for at least 25 years, a cash reserve bucket is created to fund the first two years of retirement, its size approximating 10% of the portfolio; the cash comes from FDIC-insured sources or Treasuries. A second bucket, intended to generate somewhat greater income, is planned for the rest of the first decade of retirement; this bucket is filled with longer-duration, fixed-income investments and comprises about 35% of the portfolio. The third bucket (the other 55%) is designed for the years afterward and contains a sizable equities position; the goal here is to realize some growth and compounding for a decade, then tap into that bucket for income.

In glimpsing the details of the bucket approach, you can also see the big picture. Suppose a bear market occurs just as you retire. Since your retirement income strategy pulls cash from deposit accounts and fixed-income investments first, your equity positions have time to rebound. You have a chance to avoid selling low (and selling off part of your retirement fund).

Is the bucket approach foolproof? No, but no investing strategy is. In the worst-case scenario, you drain 100% of the cash bucket(s) and end up with an all-equities portfolio. That is hardly what you want in retirement. Bucket allocations must be carefully calculated, and periodic bucket rebalancing is also needed.

The bucket approach may have both financial and psychological merits. Most retirees use the 4% rule (or something close) when withdrawing income: they take distributions from various accounts and asset classes, perhaps with little regard for tax efficiency. If Wall Street stumbles and their portfolios shrink, they may panic and make moves they will later regret – such as selling low, abandoning stocks or even running toward alternative investments in desperation.

When you use a bucket approach, you first turn to cash and/ or liquid securities for retirement income rather than equities. Psychologically, you know that if a bear market arrives early in your retirement, your equity holdings will have some time to recover. This knowledge is reassuring, and it may dissuade you from impulsive financial decisions.

Ask about the bucket approach today. It could be a great financial strategy to adopt for your retirement.

Jeff Hamm may be reached at 228-474-3427.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Securities sold, advisory services offered through CUNA Brokerage Services, Inc. (CBSI), member FINRA/SIPC, a registered broker/dealer and investment advisor. CBSI is under contract with the financial institution to make securities available to members. Not NCUA/NCUSIF/FDIC insured, May Lose Value, No Financial Institution Guarantee. Not a deposit of any financial institution.

1 – seattletimes.com/business/about-to-retire-heres-how-to-cope-with-stock-market-shocks/ [11/25/17]
2 – news.morningstar.com/articlenet/article.aspx?id=839521 [12/13/17]

22 Sep

Hey, Millennials: Whom Do You Trust for Financial Advice?

A recent survey of millennials — individuals born between 1980 and 1989 — found that 39% of respondents worry about their financial future at least once a week.

That sounds like a group in need of some counsel, but a significant number 23% trust “no one” for financial advice.*

The survey notes the top three financial issues for millennials (also called Gen Y): retirement saving, reducing credit card debt and paying off student loans. On a positive note, 47% of respondents are saving for retirement with a 401(k) at work or an individual retirement account (IRA).* However, that leaves more than half of Gen Y who haven’t started a retirement savings program.

The Importance of a Sounding Board

In its survey of millennials, TIAA-CREF found those who seek financial advice are more likely than the general population to make positive changes, such as:**

  • Monitoring and making changes to spending more frequently.
  • Establishing a plan to manage debt.
  • Starting an emergency fund.
  • Increasing monthly savings.

The value of financial advice is clear. Many millennials turn to their parents as well as friends and social media. However, a financial institution’s professionally developed online tools and resources, as well as consultations with a financial advisor, may be more appropriate. In spite of being technologically engaged, TIAA-CREF’s study reports most respondents — 55% — prefer face-to-face financial counseling.

We’re Here for You

The world of finances can be complex, but you don’t need to face it on your own. A financial professional at Navigator Credit Union can provide the help you need to create your savings and spending plan and explore options for retirement saving. Visit www.navigatorcu.org or call 800-344-3281 today.

* Source: Fidelity Investments Millennial Money Study, conducted in April 2014 by GfK Public Affairs and Corporate Communication, Fidelity.com.
** Source: TIAA-CREF Gen Y Advice Matters Survey, press release, Sept. 30, 2014, www.tiaa-cref.org.
22 Sep

Things Young Adults Should Know About Money

Whether you’re in school, working or exploring your options, you’ll need to get your finances in order. Get started with these tips.

1. Set goals. Are you paying for college, hoping for a new car or dreaming of a backpacking trip across Europe? If you know what you want, it may be easier to sacrifice now for the payoff later.

2. Start saving early. Strive for 10% of your earnings, but if that’s not doable, save as much as you can. If you’re working, be sure to participate in your employer-sponsored retirement plan, if offered (especially if there’s a company match). If you have earned income — even from part-time work — you can open an individual retirement account. With decades until you reach retirement age, even small amounts can reap big benefits. For example, suppose you are 18 years old and will retire at age 67. If you put aside just $50 a month for 49 years in a tax-advantaged retirement account earning an average of 7% a year, you could have a quarter million dollars when you retire.*

3. Avoid debt. If you do use a credit card, pay off the balance each month. According to a recent survey, the average college-age millennial has $559 in credit card debt.** If you pay only the minimum each month on a store credit card with a 21% interest rate, it could take 29 months to pay off that amount and cost $156.40 in interest charges.***

4. Protect your personal information. Keep identity thieves from stealing your information. Use strong passwords and change them regularly. Avoid using public Wi-Fi for online banking. Protect your personal identification number (PIN), and shield the keypad from view when using an ATM. Review your financial statements each month to make sure there are no fraudulent transactions.

5. Seek advice. Studies show that individuals who seek financial advice tend to make better financial decisions. At Navigator Credit Union, we’re committed to helping you on your path to financial security. Call 800-344-3281 or visit www.navigatorcu.org today to learn more.

* Rate of return is provided for information only and is not intended to represent the return of any specific investment. No taxes or fees are taken into account.
** Source: TDAmeritrade’s 3rd Annual Generation Z survey, press release, Sept. 11, 2014, amtd.com.
*** Assumes minimum payment of 3.5% of balance or $25. Source: Minimum payment calculator, creditcards.com. Based on a $559 balance at a 21% annual percentage rate.
09 Apr

Hey Baby Boomers! We’re Here for You

At Navigator Credit Union, we make it our mission to serve your financial needs at every age and stage of life. If you belong to the baby boom generation (those born from 1946 to 1964), then you’re in good company.

While every credit union’s membership is different, research suggests that more than 40% of credit union members are baby boomers.* It’s fitting that many baby boomers have made credit unions their financial home, because this generation has a history of seeking alternatives to traditional ideas and institutions (such as big banking).

Credit union membership is appealing and empowering, because credit unions work for people – not for profits – and members have a say in how the credit union is run.

Financial Solutions Off the Beaten Path

Baby boomers’ financial plans may include borrowing, saving and investing – but not necessarily in that order. They may manage multiple goals with creative and unconventional financial planning, from saving for retirement and paying for college tuition to refinancing a mortgage or taking a new career path. Navigator is tuned in to your unique goals, and we’re ready with a lineup of products and services that are flexible to fit your needs.

Loans from credit unions – for your lifestyle. We offer competitive rates on home mortgages, auto loans, home equity loans and personal loans to help you get where you need to be. Our refinancing options can help you pay off a first or second home or vehicle faster, and/or lower your monthly payments so you can focus on other financial goals.

Best savings plan – for the unexpected. Our savings accounts, certificates of deposit (CDs) and money market accounts help keep your emergency funds afloat. Building up emergency savings is particularly important if you juggle multiple responsibilities – perhaps caring for aging parents or providing financial support to adult children.

Insurance – for your changing needs. Our insurance representatives can review your homeowners, auto and life insurance coverage in light of the moving pieces in your life – teenage drivers, home improvements, divorce/remarriage, empty nest, etc.

Investing – ask a financial advisor. Our financial advisors can help you plan your portfolio for a brighter future, whether that means supporting a comfortable retirement or continuing to work. And even though retirement is a top goal for many baby boomers, we understand that this generation won’t be retiring to the proverbial rocking chair anytime soon!

Banking online or at a branch. You don’t have to be 20-something to keep up with online and mobile banking services. In fact, online banking is becoming uniformly popular across all age groups, according to a survey of Internet users.** When you want the convenience of fast, friendly in-branch service or access to free ATMs, Navigator has you covered. Call 228-475-7300 to learn more about what we have to offer, or visit www.navigatorcu.org.

* Source: Credit Union Times, Dec. 1, 2010.
** Source: Pew Internet & American Life Project, Generations Online in 2010.