The Three “L”s of Retirement Income Planning

As a retirement expert, when I first sit down with a client, I try to simplify the financial planning process by looking at his or her assets on a macro level. Just like golf, if you master the fundamentals of the swing, you will have a higher chance of success, opposed to buying the best clubs or taking tips from friends A financial advisor’s goal is not only to help you master the fundamentals, but guide you toward picking the right club for each situation. The best way to learn this is by looking at your assets in three separate money buckets called the three “L”s: Longevity, Liquidity and Legacy. By creating these three retirement buckets as your foundation, you will have a better chance of retirement success.


Most retirees worry about the longevity of their retirement money and wonder if they have enough saved. Add in factors like inflation, market risk, rising healthcare costs, and taxes, the main concern of most retirees is making sure they don’t outlive their assets. While putting together any retirement plan, the most important thing is to make sure that your cost of living will be covered. I refer to this as your retirement “pay checks,” which is the income you receive every month that will pay the bills and maintain your basic standard of life. Without longevity, the other fundamentals are not possible. After an advisor helps you establish your inflation based income amount, they can utilize guaranteed income products to cover the shortfall not provided by your Social Security and pension.


The next bucket of money is comprised of the assets you will postmark for liquidity, or your “play checks.” Play checks contain money you can easily access for entertainment, expenditures or play. This could be money in the bank, brokerage accounts, IRAs or just money you can get your hands on within a matter of days. Early in your retirement (60s and early 70s) is the best time to start spending that hard-earned money on international trips, family vacations, boats, cars and whatever makes you happy. Not only does this bucket aid in improving your mental psyche, but it also lets you sleep well knowing you have accessible reserves on hand in case of any health or unpredicted emergencies.


The legacy bucket is what you want to pass onto your heirs and how you are going to protect yourself against retirement risks, including estate, gift and estate taxes, and the possible cost of an extended stay at a long-term care facility. Leaving assets to the next generation is a luxury to some, but making sure you do not pass debt onto your children should be a necessity in any financial plan. The use of long-term care and life insurance can help leverage smaller premium payments to protect against these more expensive risks that could destroy your inheritance plans.

The three “L”s can be implemented for people of all wealth levels because each bucket must be fulfilled in sequential order. Someone who has just saved enough to retire needs to make sure they have enough guaranteed income streams built for longevity and will have to either plan on decreasing their “play checks” or lowering expenses. Someone who has saved more may have fulfilled their longevity and liquidity goal but don’t have enough to leave a legacy. Wealthy families will need to fully prepare for all three buckets and have to plan the direction of funds to each bucket. The wide socioeconomic spectrum of the three “L”s allows it to be used universally for every pre and post retiree to help create a stress-free retirement.