Real-Life Example: Patrick and Marie

Patrick and Marie are approaching retirement in just five months. They’ve done everything right—Patrick earns $170,000 a year, Marie earns $110,000, and together they’ve built $2 million in pre-tax retirement accounts and $800,000 in a taxable brokerage account. Despite their success, they need a retirement income plan that gives them clarity on how to withdraw and spend wisely.

Structuring a Retirement Income Plan with Buckets

The foundation of their retirement income plan is a three-bucket approach:

• Bucket One: Immediate spending needs—holding one to two years of living expenses in cash or equivalents. This provides stability during market volatility.

• Bucket Two: Intermediate-term investments, such as bonds, covering years three through ten. This balances growth and risk.

• Bucket Three: Long-term growth—stocks and other equity investments intended to sustain income over the next 20 to 30 years.

This structure creates consistent access to funds, regardless of market cycles, and prevents the need to sell investments at a loss during downturns.

Tax-Efficient Withdrawal Strategy

A strong retirement income plan doesn’t just focus on income—it prioritizes tax efficiency. Patrick and Marie will first draw from their taxable brokerage account in early retirement. This keeps their taxable income low while allowing their pre-tax accounts to grow.

As they reach age 75 and required minimum distributions (RMDs) begin, they’ll shift withdrawals to their pre-tax accounts. This timing helps reduce future tax spikes from RMDs and smooths their tax burden across retirement.

Incorporating Roth Conversions

Part of a comprehensive retirement income plan includes Roth conversions. By strategically converting portions of their traditional IRA to a Roth IRA in the early retirement years—when their income is lower—Patrick and Marie can lock in lower tax rates and build a future source of tax-free income.

This also helps reduce the size of their tax-deferred accounts, which can lower future RMDs and increase financial flexibility for healthcare or large purchases later in retirement.

Confidence Through Planning

With a personalized retirement income plan in place, Patrick and Marie are set to enjoy the retirement they envisioned. They can travel, support family, and spend with peace of mind, knowing every dollar has a purpose. A thoughtful plan removes uncertainty and allows retirees to fully embrace the life they’ve earned.

Seek Professional Guidance