Planning for retirement can be a daunting task. Even if you’ve done an excellent job saving—say, $1.5 million—many people still struggle with one critical aspect: situating their money effectively. At Sullivan Financial Partners, we believe there are five key pillars of a solid financial plan: income, investment, taxes, healthcare, and legacy. To build a strong foundation, you must start with income and investment. Let’s break this down.
Identifying Your Income Gap
Imagine you have $50,000 a year coming in from Social Security and pensions. You’ve determined that you need $100,000 annually to cover your expenses and enjoy the retirement you’ve worked so hard for. That leaves you with an income gap of $50,000 a year. Addressing this gap is one of the most overlooked yet essential steps in retirement planning.
When building your financial plan, we focus on three core areas: Safety, Income, and Growth
Here’s how each area plays a role..
The Safety Bucket
The first step is to establish your safety net. This includes accounts like cash, money market funds, savings, and checking accounts—essentially, money you can access quickly without penalties. While these accounts may not generate significant returns, their primary purpose is liquidity and accessibility. For example, we recommend allocating $100,000 to your safety bucket to ensure you have funds readily available for emergencies or immediate needs.
The Income Bucket
Next, we address the income gap by building an income bucket. This is where the extra $50,000 per year comes from to supplement your Social Security and pensions. Your income bucket can include various tools, such as: Certificates of deposit (CDs), Bonds, Annuities, Real estate investments
The specific tools we use depend on your unique financial situation. For instance, in this scenario, we’d allocate $700,000 of the $1.5 million into the income bucket. The sole purpose of this money is to generate the $50,000 annual income you need—for as long as you live. This step ensures your lifestyle is secure throughout retirement.
The Growth Bucket
Once we’ve taken care of safety and income, we turn our attention to growth. The remaining $700,000 can go into a growth bucket, which includes stocks, exchange-traded funds (ETFs), mutual funds, and similar investments. While the markets can be volatile, this portion of your portfolio is designed to chase higher returns and grow over time. Because we’ve already secured your lifestyle needs, you can afford to take calculated risks with this money.
Building Confidence in Your Retirement Plan
By prioritizing safety, income, and growth—in that order—you can build a retirement plan that not only meets your needs but gives you the confidence to enjoy the possibilities ahead. Retirement is your time to think bigger, explore new opportunities, and savor the rewards of your hard work.
If you need help preparing for your confident retirement journey, we’re here to guide you every step of the way. Reach out to us at Sullivan Financial Partners, and let’s start building your plan today.
Until then, think bigger and keep exploring the possibilities.