MML #023: The Three Buckets That Will Make or Break Your Retirement

My family is preparing for our first getaway of the summer. With 2 kids under the age of 4, the packing plans start way in advance:

What do we need right away? That goes in the carry-on. 

What can wait? That’s for the checked bag. 

And the snacks? Those get hidden where no one else can find them (Except for me of course).

Retirement income works the same way. You’ve got different “buckets” of money — and knowing when to tap each one is half the battle. 

Just like packing, a little planning upfront can save a lot of stress later on.

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Your Three Retirement Buckets

Bucket #1: Taxable accounts (your regular investment accounts) – You've already paid income tax on the money going in. Now you only pay taxes on dividends and capital gains.

Bucket #2: Tax-deferred accounts (Traditional 401k, Traditional IRA) – Every single dollar you withdraw gets taxed as ordinary income. Not ideal but it’s the trade you made for the tax-deduction given when you contributed to these accounts.

Bucket #3: Tax-free accounts (Roth IRA, Roth 401k) – Zero taxes on withdrawals in retirement. None. (Already paid the taxes on the front end).

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Why Analysis Beats Guesswork

When I talk with lawyers about retirement, most assume they should just take a little from each account. Spread it around, right? Makes sense on the surface.

The problem is this generic approach ignores your specific situation entirely.

I worked with a client couple recently – let's call them Sarah and Mike. Both 65, ready to retire with $2.1 million spread across their three buckets. They needed about $9,000 monthly after taxes.

Their original plan? Take proportionally from each account. Simple, clean, seemed logical.

But here's where some extra analysis made all the difference. Instead of just applying a cookie-cutter approach, we examined their specific situation: 

Their tax brackets.

Their health outlook.

Their legacy goals.

And their projected expenses.

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The Strategy That Actually Works

We mapped out multiple withdrawal scenarios:

• What if they prioritized taxable accounts first?
• How would starting with tax-deferred accounts impact their lifetime taxes?
• What role should Roth withdrawals play in each phase of retirement?

Then we ran the numbers. For their specific circumstances, a strategic sequence made a massive difference – we're talking about hundreds of thousands more in their pocket over retirement.

But the thing is—the exact approach that worked for Sarah and Mike might not be right for you. 

Your health, your tax situation, your family dynamics, your other income sources – all of these factors influence the optimal strategy.

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Your Next Step

Look at your three buckets right now. What's your balance across taxable, tax-deferred, and tax-free accounts?

More importantly – are you following a thoughtful strategy tailored to your situation, or are you planning to use a one-size-fits-all approach?

The conventional wisdom of "take a little from everywhere" isn't wisdom at all – it's a recipe for leaving money on the table because it ignores what makes your situation unique.

Your retirement deserves a customized blueprint, not a generic template.