|
Post by xray on Jul 13, 2022 14:54:53 GMT
SmartAsset The Bucket Strategy is Helping Retirees Limit Their Losses and Keep their Cash Flowing in 2022 Patrick Villanova, CEPF® Tue, July 12, 2022, 3:49 PM
With the recent arrival of a bear market, the newly retired are facing a sobering reality: having to sell investments during a downturn to meet their income needs. This nightmare scenario, known as sequence risk, can shorten the lifespan of a retirement portfolio and send retirees scrambling for additional income.
A financial advisor can help you plan for retirement and navigate market volatility. Find a trusted fiduciary advisor today.
Then again, retirees who use the bucket strategy for investing and withdrawing their assets may be better insulated from the recent turmoil on Wall Street. The bucket strategy relies on segmenting your sources of income into different groups or "buckets," each with a set time horizon and corresponding risk level. It aims to provide retirees with enough cash to cover several years' worth of expenses without having to tap their investments during a down market.
Christine Benz, director of personal finance for Morningstar, recently examined the performance of several model portfolios that employ the bucket strategy. While these model portfolios have all lost money in 2022, they've performed better than the traditional 60/40 portfolio, an asset allocation commonly used by retirees. They've also outperformed the S&P 500, which was down 21% through the first six months of the year, by a wide margin.
"[T]he Bucket system has delivered by keeping the faucets open," Benz wrote. "Retirees using a Bucket system can draw upon their cash reserves without having to disrupt their long-term investments, which have likely experienced price declines so far this year."
Retirement Bucket Strategy Explained
The bucket strategy is a system for spreading your assets across different groups of investments that will be tapped at various points. The approach typically calls for three different buckets of assets, each with varying levels of risk.
Your short-term bucket will hold enough cash and cash equivalents to cover approximately two years' worth of spending needs. This cash bucket, which is largely unaffected by market fluctuations, is designed to insulate you from sequence risk and help you avoid withdrawing riskier assets during a down market.
The intermediate bucket will comprise investments that you plan to tap and convert into cash three-to-10 years in the future. This bucket may include longer-maturity bonds, preferred stocks, growth and income funds and other fixed income assets. Finally, a long-term bucket will hold equities and riskier investments that you plan to hold for at least 10 years.
In theory, the bucket system enables retirees to use their cash cushion to meet short-term spending needs, all while riding out market volatility and avoiding withdrawals during a downturn.
How The Bucket Strategy Has Performed in 2022
Benz tracks the performance of six different model portfolios that employ the bucket strategy: three that use mutual funds and three that use exchange-traded funds.
All six model portfolios range in risk level, going from aggressive to moderate to conservative. Her equity-heavy aggressive portfolios, which include an 8% cash bucket, have unsurprisingly faired the worst this year and are down approximately 12%. The moderate and conservative portfolios, which include cash buckets of 10% and 12%, respectively, have performed better. While the moderate portfolios were down approximately 10% in late June, the conservative options had lost just 8% in the same time.
No, retirees aren't making money using the bucket strategy. However, they are meeting their income needs while doing minimal damage to the long-term viability of their portfolios.
How to Refill Your Cash Bucket
Of course, one caveat of the bucket strategy is the need to replenish the short-term cash bucket after its been exhausted. This likely won't be a problem if the markets rebound within two years (or how ever long the cash bucket is designed to last).
But what if stocks and bonds don't bounce back within two years, and a more protracted bear market sets in? Benz says the answer lies in finding the "least bad option," likely short-term bonds. Start by selling these, Benz suggests.
"They're not a cash substitute, but over market history, their losing periods have tended to be both shallow and short-lived," she said.
While retirees may also look to nonportfolio solutions for generating income, like an annuity, they may not have the capital to purchase one. A reverse mortgage or cashing out a life insurance policy are two other routes a retiree could consider in such a scenario.
Bottom Line
The bucket strategy is a system for investing and withdrawing assets to meet short-term spending needs while avoiding sequence risk. It involves segregating assets into different "buckets," each with a defined time horizon and risk level. Morningstar's Christine Benz recently reviewed the performance of several model portfolios that use the bucket strategy and found that while these asset allocations have lost money in 2022, they've outperformed the traditional 60/40 portfolio.
Retirement Planning Tips
A financial advisor can help you through the all-important process of retirement planning, give you investment advice and even help with your estate planning. Finding a qualified financial advisor doesn't have to be hard. SmartAsset's free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you're ready to find an advisor who can help you achieve your financial goals, get started now.
Whether retirement is just around the corner or still decades away, knowing where you stand is a critical part of any retirement plan. SmartAsset's Retirement Calculator can help you estimate how much you can except to have saved by the time you're ready to retire.
For retirees who are more focused on limiting their tax bills, Fidelity found that proportionally withdrawing assets from different buckets simultaneously can result in a lower tax liability compared to the traditional bucket strategy.
----------
Live Long and Prosper....
|
|
|
Post by Chahta on Jul 13, 2022 15:10:59 GMT
Is it “the bucket strategy” that limits sequence risk or is it having a cash position to consume that limits the sequence risk?
|
|
|
Post by Mustang on Jul 13, 2022 15:21:47 GMT
Its the cash reserve that limits sequence of return failure but a cash bucket also lowers return.
Harold Evensky, who pioneered the bucket approach, said in a 2010 interview that the sensible number of buckets for a do-it-yourself investor was two. He is said to have simply bolted on a cash account to his total return portfolios. Distributions are only from growth. Cash is spent first and replenished from growth. A failure is when cash runs out. He advocated a much simplified approach for individual investors. Modern advocates, like Benz, have complicated it. I have a 60/40 portfolio (not including an annuity). Without the annuity it is 13% cash which is approximately 3.75 years if withdrawals. Mutual funds + cash has lost 11.9% this year. That is more cash than I want and I have mentioned I'm investing a little each month. I plan on getting down to two years. Christine Benz of Morningstar tested a simplified bucket approach. She attached a cash bucket to Vanguard Balanced Index Fund (60% stock and 40% bonds). For the period 2000-2017 she compared it to her multi-fund approach. She said she preferred the multi-fund approach to the single fund approach because when rebalancing once per year to replenish cash there were always funds that needed pruned. She said using Vanguard Balanced Index, the cash account was sometimes depleted and funds had to be sold early. She said the simplified approach finished the test having a balance that was $400,000 less than the multi-fund approach. But why did she pick Vanguard Balanced Index Fund? And why an 18-year period starting in 2000 instead of a 20-year period starting in 1998? There was a big correction in 2000. Vanguard Balanced Index suffered a sequence-of-return loss losing money in 2000, 2001, and 2002 and it took a huge 22.2% loss in 2008. A reader pointed out that if she had used Vanguard Wellesley Income Fund instead of Balanced Index, the single fund approach would have had a ending value greater than her multi-fund portfolio. Wellesley Income lost money in 1999 but had solid returns 2000-2002. And, it only lost 9.8% in 2008. For part of my portfolio I intend to have 50/50 Wellington and Wellesley. Wellington outperforms Wellesley during the good years (1990-2019) and Wellesley outperforms Wellington during the bad years (1968-1997). The plan is to use the 4% Rule for withdrawals which go to cash. The withdrawal will come from the fund with the highest previous end of year balance. No withdrawal is taken in years where both funds lose money.
Withdrawals and spending are two different things. Sometime spending will be more than the annual withdrawal. Sometimes it will be less. Cash is the buffer. If cash becomes three times the annual withdrawal then no withdrawal is taken that year. If cash drops below one year withdrawal then a withdrawal will be taken regardless of losses from the fund that lost the least.
Be careful of the analysis. A simplified one fund + cash bucket does not always under preform Benz's complicated multi-fund approach.
|
|
|
Post by mozart522 on Jul 13, 2022 16:27:15 GMT
Buckets, schmuckets. Most investors have some variation of that using generally more stable assets (bonds) and don't look at them as buckets. Some generate enough pure income to meet their expenses. During a prolonged bull (2008-2021), holding 8,10,12% cash has to lower portfolio returns. This is on top of the cash embedded in many OEFs. It generally is sold as a risk management tool for investors who might sell in panic when things go south. The comfort of having several years of expenses in cash can be expensive.
|
|
|
Post by steelpony10 on Jul 13, 2022 17:21:10 GMT
Without adequate cash flow check back in 2024 and beyond. Investors cut back their lifestyle also in the past, ate their seed corn. Retirees in addition also lose asset recovery time. Over dependence (greed) on equity markets is the culprit. Everyone wants to brag about their system or returns by overreaching their needs without a backup plan. I saw it in the 70’s and early 00’s.
|
|
|
Post by FD1000 on Jul 17, 2022 14:24:28 GMT
So far, good rebuttal posts. The bucket system is another myth that must be debunked, see ( link).
|
|
Deleted
Deleted Member
Posts: 0
|
Post by Deleted on Jul 17, 2022 15:01:01 GMT
So far, good rebuttal posts. The bucket system is another myth that must be debunked, see ( link). ARE YOU KIDDIN' ME, A LINK TO YOUR OWN OPINION ISN'T PROOF OF ANYTHING. That's the last link of yours I will ever open.
|
|
|
Post by mozart522 on Jul 17, 2022 18:04:27 GMT
So far, good rebuttal posts. The bucket system is another myth that must be debunked, see ( link). ARE YOU KIDDIN' ME, A LINK TO YOUR OWN OPINION ISN'T PROOF OF ANYTHING. That's the last link of yours I will ever open. Do you use or like the bucket system? If so, Why?
|
|
Deleted
Deleted Member
Posts: 0
|
Post by Deleted on Jul 17, 2022 18:31:22 GMT
Listening to Benz and the good points brought up by Mustang (trust me when I say he has studied this more than any of us), the main point is to not be forced to sell assets at a loss. Seems you also need to make sure you minimize taxes by preventing this as well. I have to believe there are psychological benefits to prevent panic as well by holding different buckets.
Mustang - did Benz respond to the reader pointing out different results using Wellesley?
Personally, I like having 10 years of safe-ish assets. As far as I'm concerned dividends from companies like JNJ, KO, MCD, etc...fit this requirement and could be my second bucket using the income - not selling to replenish bucket 1. I will not be holding bonds or the G fund if it doesn't get back in the business of keeping up with inflation.
Seems to me the bucket system is as good a system as any. I like the idea of 2 years of expenses available in hard cash. Helps me sleep well.
Whatever keeps a retiree from spending down is fine. The bucket system seem to do that.
|
|
|
Post by ECE Prof on Jul 17, 2022 19:09:35 GMT
"Personally, I like having 10 years of safe-ish assets. As far as I'm concerned dividends from companies like JNJ, KO, MCD, etc...fit this requirement and could be my second bucket using the income—not selling to replenish bucket 1."
You can also add income from CEFs. The income keeps coming, and depends not on the value of the security. Steelpony10 can attest to this. My income keeps growing every month, and yes, I have to pay more taxes. But, tax efficiency is a different story.
ECEProf.
|
|
Deleted
Deleted Member
Posts: 0
|
Post by Deleted on Jul 17, 2022 19:13:40 GMT
ARE YOU KIDDIN' ME, A LINK TO YOUR OWN OPINION ISN'T PROOF OF ANYTHING. That's the last link of yours I will ever open. Do you use or like the bucket system? If so, Why? Yes, I organize my portfolio with timeframes in mind. It's bucket like. Money I think I may need relatively soon is invested very conservatively. Money that will be subject to RMD withdrawals in a few years is invested more moderately. Money that will be for long term care or much younger heirs is petal to the metal. Call it a buckets system, mental accounting, whatever, I consider it commonsense and don't understand why it generates any controversy.
|
|
bf22
Commander
Posts: 135
|
Post by bf22 on Jul 17, 2022 19:27:10 GMT
So far, good rebuttal posts. The bucket system is another myth that must be debunked, see ( link). ARE YOU KIDDIN' ME, A LINK TO YOUR OWN OPINION ISN'T PROOF OF ANYTHING. That's the last link of yours I will ever open. Another myth is that there is only one best system. (You just increased traffic on his site by 50%).
|
|
|
Post by Mustang on Jul 17, 2022 20:52:27 GMT
Listening to Benz and the good points brought up by Mustang (trust me when I say he has studied this more than any of us), the main point is to not be forced to sell assets at a loss. Seems you also need to make sure you minimize taxes by preventing this as well. I have to believe there are psychological benefits to prevent panic as well by holding different buckets... Mustang - did Benz respond to the reader pointing out different results using Wellesley? Whatever keeps a retiree from spending down is fine. The bucket system seem to do that. Benz wrote the article a couple of years ago. I looked up a list of all of her articles (she has a lot) and didn't see it. But, I don't remember her answering the comment.
The bucket strategy really doesn't prevent you from spending down your portfolio. Withdrawals are used to cover living expenses. Eventually the money has to be taken from somewhere either profits or principal. The goal is to have enough to live on and maybe something extra for the heirs.
The idea is that something will be up and can be sold to replenish cash. If bucket 3 is up it is used to not only replenish cash but also bucket 2 (re-balancing). Re-balancing may require selling principal to do it. If it is not re-balanced than bucket 2 can be depleted. Theoretically, it is possible to completely deplete bucket 2 leaving only bucket 3. And, pruning back profits does not necessarily mean that cash is completely restored back to two years of withdrawals. When talking about the single fund bucket method Benz said that cash was depleted and funds had to be sold early. Whether the cash bucket is replenished with profit or principal depends on how fast things recover. And that depends entirely on whether we are in good times or bad times.
I have read several Early Retirement Now articles. Here is one on the bucket strategy. He points out the worst time to retire was during the stagflation years (which we may be repeating). He describes the performance of the bucket approach if the buckets are re-balanced annually, if a huge cash bucket is required because of depressed earnings during the stagflation years and if a rising equity glides lope is used which is allowing the depletion of buckets 1 and 2 ending up 100% stock. The upward glide slope has been mentioned by several researchers like Michael Kitces. earlyretirementnow.com/2021/09/14/bucket-strategies-swr-series-part-48/
I personally think the bucket approach is too complicated. But, it has some good aspects that can be used in a simpler form.
|
|
|
Post by FD1000 on Jul 18, 2022 0:00:37 GMT
ARE YOU KIDDIN' ME, A LINK TO YOUR OWN OPINION ISN'T PROOF OF ANYTHING. That's the last link of yours I will ever open. Another myth is that there is only one best system. (You just increased traffic on his site by 50%).
Never said there is only one system. In fact, I have said hundreds of times that using a limited number of funds(index+managed), hardly trading based on someone goals and risk tolerance is an excellent way to invest. Basically, KISS
|
|
|
Post by FD1000 on Jul 18, 2022 0:04:10 GMT
Sara: Mustang - did Benz respond to the reader pointing out different results using Wellesley?
FD: I have a few private messages with her about Wellesley. She admitted it's one of the best funds ever, especially for retirees, but she can't post or recommend investing more than 20% in any one fund. I can and why my wife will use Wellesley for over 30%.
|
|
|
Post by retiredat48 on Jul 18, 2022 2:35:45 GMT
IMO...
--You do not add to or subtract from overall performance using a bucket strategy.
--A bucket strategy is beneficial to some as it helps in "Mental Accounting" for what the retiree has to do. That is, he/she has to make market timing decisions annually, for RMDs and taking money to live on. Such drawdown is difficult for some.
--What's the big deal of having to sell some equity funds in a down year? Safe Withdrawal Studies are based on doing this. If you are concerned consider this math. Let's say you need 4% from your portfolio. You invest in stock and bond funds that yield let's say 2.5% in dividends/interest. OK, you keep those dividends in money market or short term bond funds, if you like. That means you only need, at worst, to sell 1.5% of your portfolio annually, including in any bear market. This 1.5% in a down market is not deleterious to ones wealth.
If it helps you keep track of your strategy...use "buckets." But when you exhaust that two years bucket, now the fun begins...for you have to replenish the buckets. That's where the emphasis should be placed...when and how to keep buckets plentiful.
--Most using two years buckets are keeping 2 years spending cash in things like money market funds. As another posted, this overall detracts from long term portfolio performance. Two years is too long for me.
Disclosure...I do not use the bucket approach; but my actions are often consistent with it, ensuring I will withdraw monies from the places that should be sold. Has worked for me for 29 years now.
R48
|
|
bf22
Commander
Posts: 135
|
Post by bf22 on Jul 18, 2022 3:35:02 GMT
Another myth is that there is only one best system. (You just increased traffic on his site by 50%).
Never said there is only one system. In fact, I have said hundreds of times that using a limited number of funds(index+managed), hardly trading based on someone goals and risk tolerance is an excellent way to invest. Basically, KISS This thread is about the bucket system which can work just as well as any other system given one's personal parameters.
|
|
|
Post by FD1000 on Jul 18, 2022 4:02:54 GMT
Never said there is only one system. In fact, I have said hundreds of times that using a limited number of funds(index+managed), hardly trading based on someone goals and risk tolerance is an excellent way to invest. Basically, KISS This thread is about the bucket system which can work just as well as any other system given one's personal parameters. You are right. Any system can work, the question is why you need to complicate things. You can own only 3-5 funds and do as well as someone with 20 funds. Same with the bucket system. Let me know logically, why buckets? Why not just a simple portfolio of several funds using a certain asset allocation? I laid out ( here) for a generic retiree, nothing about my system. I don't need to repeat my thoughts and why I created my site.
|
|
bf22
Commander
Posts: 135
|
Post by bf22 on Jul 18, 2022 14:46:58 GMT
This thread is about the bucket system which can work just as well as any other system given one's personal parameters. You are right. Any system can work, the question is why you need to complicate things. You can own only 3-5 funds and do as well as someone with 20 funds. Same with the bucket system. Let me know logically, why buckets? Why not just a simple portfolio of several funds using a certain asset allocation? I laid out ( here) for a generic retiree, nothing about my system. I don't need to repeat my thoughts and why I created my site. I have no problem with simple, except for myself. I like more funds, more evolved asset allocations, better.
|
|
|
Post by Mustang on Jul 18, 2022 23:08:00 GMT
You are right. Any system can work, the question is why you need to complicate things. You can own only 3-5 funds and do as well as someone with 20 funds. Same with the bucket system. Let me know logically, why buckets? Why not just a simple portfolio of several funds using a certain asset allocation? I laid out ( here) for a generic retiree, nothing about my system. I don't need to repeat my thoughts and why I created my site. I have no problem with simple, except for myself. I like more funds, more evolved asset allocations, better. More funds are not always better. If the funds are similar in nature then they will have the same companies. That results in very little diversification. Morningstar x-ray shows the overlap. It is surprising how many funds own the same stocks.
|
|
|
Post by mozart522 on Jul 22, 2022 22:16:01 GMT
Mustang, "Harold Evensky, who pioneered the bucket approach, said in a 2010 interview that the sensible number of buckets for a do-it-yourself investor was two. He is said to have simply bolted on a cash account to his total return portfolios. Distributions are only from growth. Cash is spent first and replenished from growth. A failure is when cash runs out. He advocated a much simplified approach for individual investors. Modern advocates, like Benz, have complicated it." I didn't realize it, but I guess I pretty much have an Evensky bucket system. Each January I take my RMD and put it in VG muni MM fund. I use this to pay for my expenses for the year. The rest of my portfolio is invested as if the muni account didn't exist, a TR portfolio. I never thought of it as a bucket system, but I guess it is. By the way, I realize taking all my yearly expenses in January can be sub-optimal, but since I can never really know in advance what will be optimal, at least I get the peace of mind knowing my expenses are covered for the year.
|
|
|
Post by Chahta on Jul 23, 2022 2:05:53 GMT
A bucket system is basically a way to understand how to allocate one’s investing assets. Forces one to think short and long term. Not everyone has the mettle to invest the way people that post on investing forums do. Average Joe investors need some type of structure if they are to B&H and not trade.
|
|
|
Post by mozart522 on Jul 23, 2022 12:32:38 GMT
A bucket system is basically a way to understand how to allocate one’s investing assets. Forces one to think short and long term. Not everyone has the mettle to invest the way people that post on investing forums do. Average Joe investors need some type of structure if they are to B&H and not trade. Well I'm not always buy and hold, and I never thought of my method as a bucket system. I just like taking care of things I know have to happen as early as possible. So after I fund my muni MM with my annual withdrawal, I also do my Roth conversions almost immediately. Then I can concentrate on the portfolio knowing I don't HAVE to make any more moves for the year.
|
|
|
Post by Mustang on Jul 24, 2022 8:02:25 GMT
The bucket strategy really doesn't prevent you from spending down your portfolio. Withdrawals are used to cover living expenses. Eventually the money has to be taken from somewhere either profits or principal. The goal is to have enough to live on and maybe something extra for the heirs.
I wrote the above earlier in response to the possibility of spending down a bucket portfolio and posted a link to a more technical response published in Early Retirement Now.
The simple answer is yes, you can spend down your assets even if you use the bucket strategy. It all depends upon how large your cash bucket is and how long investments stay down. As the New Retirement Now article discussed during the stagflation years of the 70s you would have needed a cash bucket big enough to cover 10-15 years of spending to not spend down assets.
I stumbled across a Morningstar article touching on this topic and are more disillusioned than ever with the bucket strategy. So what is Benz's recommendation if the cash cannot be replenished from profits.
"But what if stocks and bonds stay in the dumps for longer than two years, or if a retiree were employing a smaller cash cushion than two years’ worth of portfolio withdrawals? In that case, retirees have a couple of options. One is to look to the portfolio for the least-bad option for withdrawals, which today is short-term bonds. My Model Bucket Portfolios include an allocation to nominal short-term bond funds (Fidelity Short-Term Bond in the mutual fund portfolios and Vanguard Short-Term Bond Index in the ETF versions) as well as short-term inflation-protected bonds (Vanguard Short-Term Inflation-Protected Securities in all of the portfolios). These holdings have posted small losses so far this year, but they’re decent next-line reserves to be tapped if true cash investments have been depleted. They’re not a cash substitute, but over market history, their losing periods have tended to be both shallow and short-lived."
Selling short-term assets in bucket 2 is still spending down principal. When that is gone she looks to other assets to sell. "Alternatively, retirees could look to nonportfolio sources for income—life insurance cash values, a standby reverse mortgage, or possibly even an annuity." But she admitted that cash needed to buy an annuity might not be available. www.morningstar.com/articles/1100651/how-is-the-bucket-strategy-holding-up
She and I have entirely different views of these buffer assets. Selling them may protect the portfolio but its still selling assets. First, whole life policies are expensive. Term life insurance is less expensive but has no cash value. Because the premiums are lower term insurance is an easy way to make sure the family is taken care of when the kids are young but the cost increases considerably as one grows older. One of my policies terminated at age 70. The other became so expensive I reduced coverage to keep the premiums reasonable.
An investor looking for a stable income has probably already bought a single payment immediate annuity. Most financial advisors sell them. I've had two try to sell me some. An annuity might give the investor a steady income for life but it leaves nothing for heirs. Like all insurance products, if the investor dies young the insurance company keeps the remaining principal.
I have always considered reverse mortgages a viable option for meeting living expenses. But that is also the main purpose of withdrawals from a retirement portfolio. I will have to think long and hard before using one to protect investments. It could keep you from selling at a loss and when the funds recover you then sell them to pay off the loan. But its still selling principal, just not as much. If the loan is not paid the bank get the home. That is another asset lost. I know of several homes that banks have taken because heirs did not or could not pay off the loans.
The point is that it is still selling assets. The bucket strategy doesn't protect assets. The protection comes from the cash reserve. When it is gone the only alternative is to sell principal (or other assets) to meet living expenses.
.
|
|
|
Post by steelpony10 on Jul 24, 2022 11:20:45 GMT
Mustang That second paragraph above made me go the income route. I saw that close up. A dedicated section perhaps in income only investments takes the place of an annuity when combined with SS. If one choses to spend down which we may be forced to do one day our order is equities first, munis second then income investments. Most unreliable income to most lucrative and steady in our particular case. Your describing quite a mess to drop on a spouse or heirs in my opinion.
|
|
Deleted
Deleted Member
Posts: 0
|
Post by Deleted on Jul 24, 2022 12:50:05 GMT
Mustang That second paragraph above made me go the income route. I saw that close up. A dedicated section perhaps in income only investments takes the place of an annuity when combined with SS. If one choses to spend down which we may be forced to do one day our order is equities first, munis second then income investments. Most unreliable income to most lucrative and steady in our particular case. Your describing quite a mess to drop on a spouse or heirs in my opinion. From experience, a major part of the mess alluded to above, is the increased tax burden on the surviving spouse, fewer tax deductions and credits for a 'single' person than a 'couple.' The assets and possibly the income remain the same (except for one less monthly SS or annuity payment). You have stated many times that paying taxes isn't a problem. However, it can become a problem for you, your spouse, or your heirs. Suggestion: prepare them and line up professional advisors.
|
|
|
Post by steelpony10 on Jul 24, 2022 13:30:14 GMT
@haven ,
My wife and I both understand taxes as volunteer tax preparers. I just get a kick of the tail wagging the dog mentality of some. There is absolutely no long term disincentive to make as much as you can in taxable income no matter your situation after you take full advantage of allowable tax savings. I’d rather have a large taxable income and tax bill.
My wife will seek a financial advisor because she has no interest in investing as a hobby. I also have no interest but will keep managing until I think I can’t. Our current effective tax rate is about 6-7% on a large income.
Make sure you figure in the other side of the equation, reduction of any expenses incurred by your spouse who has passed and the 2 year lapse after that occurrence of favorable tax treatment. I think one has way bigger concerns then taxes as one ages.
You’re correct what a mess most of these schemes are. Having managed two set of parents assets up to 35 years helped us set up our current cash flow that continues to work after one passes even unattended. I monitored, tweaked and helped file very little taxes without much spend down until LTC ate up the remains for 2 of our parents for 35 years.
So if my wife is the survivor it’s her money to do what she wants with it. For me our kids as heirs can split up the smoldering debris after I’m finished with my retirement.
|
|
|
Post by mozart522 on Jul 24, 2022 13:44:35 GMT
The above is why I'm converting to Roths in my and my wife's IRA. This will make withdrawals easier for her tax-wise when I'm gone, as she can blend withdrawals from TIRAs and Roths for expenses. All other heirs will have to withdraw in 10 years. This too can be split in such a way to provide the smallest tax burden and can be based on the actual tax bracket situation of each heir. Hopefully, they all will have enough sense to put any excess not needed immediately in IRAs of their own and taxable ETFs or munis as the case may be.
Currently, my pile seems to be growing above withdrawals.
|
|
Deleted
Deleted Member
Posts: 0
|
Post by Deleted on Jul 24, 2022 13:45:52 GMT
Another suggestion, if portfolio depletion in retirement is likely, take withdrawals first from taxable accounts, then tax deferred accounts, and finally from Roth Iras. This is just standard financial planning advice, ignore at one's own peril.
|
|
|
Post by steelpony10 on Jul 24, 2022 13:58:15 GMT
Another suggestion, if portfolio depletion in retirement is likely, take withdrawals first from taxable accounts, then tax deferred accounts, and finally from Roth Iras. This is just standard financial planning advice, ignore at one's own peril. Correct. Most should know that. As an income investor like our parents they chose to ditch equities first because more steady and larger assured income slowed spend down. All our HY no growth income is in a TIRA stretching out RMD’s since those are based on PV at the end of the year. Growth and munis are in a taxable account. I’d probably covert those to HY also (increasing taxes) before eating my seed corn.
|
|