Understanding this concept will allow you to protect your money.

Planning for retirement is more than just saving up a nest egg—it’s about ensuring that your financial resources are structured in a way that allows you to live comfortably, without the stress of running out of money. At BAM Advisory Group, we believe that a well-thought-out investment philosophy is crucial, especially as you approach and enter retirement. In this post, we’ll walk you through our unique approach, known as the Three-Bucket Strategy, which aims to reduce financial stress and provide stability in retirement. Most people don’t have a clear strategy for their money. They may have a collection of mutual funds, stocks, or other investments, but they lack a cohesive plan for how to use these assets to generate income in retirement. Many of the clients we meet initially have no clear answer to the question: “What is your investment philosophy?” Often, we hear vague responses like “buy and hold” or “long-term mutual funds.” However, these aren’t true investment philosophies—they’re just products. Today, we’ll explain how our Three-Bucket Strategy can help you build a retirement plan that is both intentional and resilient. Why the One-Bucket Approach Fails Before diving into the Three-Bucket Strategy, let’s first address a common approach that we see all too often: the One-Bucket Approach. This is when retirees rely solely on market investments to fund their retirement, withdrawing funds as needed to cover expenses. The issue with this approach is that it leaves retirees vulnerable to market fluctuations. If the market experiences a downturn, as it did in 2022 with a 20% drop, pulling money out during a dip can significantly deplete your portfolio. If your retirement plan is based on the hope that the market will always grow, you’re setting yourself up for a stressful retirement. This strategy lacks predictability and security. At BAM Advisory Group, we never want to tell our clients, “You’ll need to go back to work,” or worse, “You’ll need to reduce your standard of living.” That’s not acceptable, and it’s certainly not what anyone deserves after a lifetime of hard work. The Three-Bucket Strategy: A Proven Approach for Financial Security Our Three-Bucket Strategy is designed to create intention behind your money and provide a more stress-free way to live your life in retirement. Each bucket serves a specific purpose and has its own set of rules for how it should be used. The Three Buckets are:

1. Protection Bucket (Blue Bucket)
2. Income Bucket (Green Bucket)
3. Growth Bucket (Red Bucket)

Let’s break down each bucket to understand how it can fit into your overall retirement strategy. Bucket 1: The Protection Bucket (Blue Bucket) The first and most crucial bucket is the Protection Bucket. Think of this as your financial safety net or emergency fund during retirement. This bucket is designed to cover unexpected expenses that may arise, allowing you to avoid selling investments at a loss during market downturns. What Goes into the Protection Bucket:

• Cash on hand
• Checking and savings accounts
• Certificates of Deposit (CDs)
• Money market funds

Purpose of the Protection Bucket: The Protection Bucket should be highly liquid, meaning the funds can be accessed quickly without penalty. This is essential for handling unforeseen expenses, such as home repairs, medical emergencies, or replacing a vehicle. In Colorado, for example, we frequently experience severe weather events like hailstorms, windstorms, and snowstorms that can cause property damage. Having cash readily available ensures that you’re prepared for these unexpected costs. How Much to Keep in the Protection Bucket: For retirees, we recommend maintaining 6 to 12 months’ worth of living expenses in this bucket. This allows you to cover emergencies without needing to tap into your long-term investments, which may be down in value. Bucket 2: The Income Bucket (Green Bucket) The second bucket, and perhaps the most critical as you approach retirement, is the Income Bucket. This bucket is designed to generate a stable and predictable stream of income throughout your retirement years. Purpose of the Income Bucket: The goal of the Income Bucket is to provide consistent, reliable income that covers your daily living expenses. Think of it as your paycheck in retirement. The key to a successful income plan is ensuring that the income is predictable, lasts for your lifetime, and is not tied to the volatility of the stock market. What Goes into the Income Bucket:

• Social Security benefits
• Pensions
• Annuities
• Rental income from real estate
• Bonds (in the right interest rate environment)

Why Income Should Not Be Tied to the Market: One of the biggest mistakes retirees make is relying on market investments to generate their retirement income. If the market drops, and you’re forced to withdraw funds, you’re effectively locking in losses. For example, during the market downturn in 2022, many retirees saw their portfolios drop by 20-25%. If you had to withdraw money during that time, you would have accelerated the depletion of your funds. By keeping your income sources separate from the market, you protect yourself from these risks. At BAM Advisory Group, we often recommend annuities, Social Security, and rental income as stable sources of retirement income. These are not tied to market fluctuations and can provide a steady stream of payments. Bucket 3: The Growth Bucket (Red Bucket) The final bucket is the Growth Bucket, which is designed for long-term growth and is intended to cover future expenses that may arise, such as healthcare costs, rising taxes, or inflation. This bucket is where your investments can continue to grow over time. Purpose of the Growth Bucket: While the Protection and Income Buckets are focused on stability, the Growth Bucket is meant to provide higher returns over the long term. This bucket is more volatile because it includes market-based investments, but since you won’t need to tap into it for several years, you can afford to ride out the ups and downs. What Goes into the Growth Bucket:

• Individual stocks
• Exchange-Traded Funds (ETFs)
• Real Estate Investment Trusts (REITs)
• Alternative investments like private equity or commodities

Why You Need a Growth Bucket: Even in retirement, you need a portion of your portfolio that continues to grow. This helps protect against inflation, which erodes your purchasing power over time, and ensures you have funds available for significant future expenses, such as long-term care or major health issues. By investing in assets with higher growth potential, you create a buffer that can support your financial needs 10, 15, or even 20 years down the line. Integrating the Three Buckets: A Balanced Approach The beauty of the Three-Bucket Strategy is that it offers a balanced approach to managing your money in retirement. By dividing your assets into these three categories, you can ensure that you have liquidity for emergencies, stable income for daily expenses, and growth for the future. How to Allocate Your Assets Across the Three Buckets:

• Protection Bucket: 10-15% of your total assets
• Income Bucket: 40-50% of your total assets
• Growth Bucket: 35-45% of your total assets

These percentages will vary based on your specific financial situation, risk tolerance, and retirement goals. At BAM Advisory Group, we work with each client to customize the allocation that best fits their needs. Schedule a consultation to learn how we can help you implement this strategy. Why Having a Written Income Plan Matters One of the most critical aspects of retirement planning is having a written income plan. This plan should outline exactly how much money you’ll need each month, where that money will come from, and how you can adjust your strategy as needed. Without a written plan, you risk running out of money or facing unexpected financial stress. Benefits of a Written Plan:

• Provides clarity and peace of mind
• Reduces the risk of running out of money
• Helps you adjust to changes in the market or your personal circumstances
• Ensures you can enjoy your retirement without financial worries

At BAM Advisory Group, we specialize in helping clients create comprehensive income plans tailored to their unique needs. Contact us to get started on your path to a stress-free retirement. Conclusion: A Stress-Free Retirement is Possible with the Right Strategy Retirement should be a time to relax, enjoy life, and focus on what truly matters. By implementing the Three-Bucket Strategy, you can eliminate much of the financial stress that retirees often face. This strategy allows you to create a stable, predictable income stream while still benefiting from market growth. If you’re ready to take control of your retirement planning, reach out to BAM Advisory Group for a personalized consultation. Let us help you build a retirement plan that ensures you live your best life—free from financial stress. Take Action Today:

• Watch our YouTube video for more insights on the Three-Bucket Strategy.
• Explore our Retirement Planning Resources for more guides and tools.
• Schedule your free consultation to start planning your stress-free retirement.

By using the Three-Bucket Strategy, you can enjoy a financially secure and fulfilling retirement. Don’t leave your future to chance—start planning today to protect what’s most important