Bucket Theory


Review why you save and how you save

Hello everyone. As we enter the back half of 2018, I thought it would be a good time to review why saving for retirement is important… and why saving in more than one way is critical. As you know, in each article, I try to cover one topic or base that applies to saving for retirement. This quarter, I will bring it all together to show you why having “buckets” of money is ideal upon retirement.

You have heard the saying “never have all of your eggs in one basket” before. It applies to many different aspects of life. This includes your retirement savings portfolio. Many investors believe if they have an IRA or if they contribute to their company 401(k) they will be set for retirement. While each individual situation is different, I believe in an approach with multiple avenues. Enter what I like to call “Bucket Theory.”

Bucket Theory

The core of this idea is that upon retirement you will have four to seven “buckets” of money to draw from. Now, this is something that takes time to develop. Rome wasn’t built in a day and neither is your retirement landscape. However, it is important to think about how you are preparing for retirement and what vehicles you are using to cultivate your future. So why does having buckets make sense? A crucial reason is diversification. One account is easy to deplete. But having four to seven buckets to draw from in retirement is much harder to deplete.

Where to start

So how do you start to build buckets and what are some buckets to consider? When you are mapping out how you will save for retirement, think about what you envision in your retirement and plan accordingly. The best place to start is with your company’s 401(k) plan. Defer enough from your paycheck to take advantage of the company match, if offered. As you get older and move up the ladder, save more based on your wage increase.

If your employer does not have a 401(k) in place, open an IRA and begin contributing to that account. The maximum contribution to an IRA for 2018 is $5,500. If you are over 50 years old, you may contribute up to $6,500. Be sure to consider whether you are contributing to a traditional or Roth IRA, as there are various tax implications to think about.

Filling other buckets

Over time, continue to create, build, and preserve money for retirement through other buckets. A brokerage account allows you to invest in cash and mutual funds, which include stocks and bonds. Annuities provide you with monthly payments that can serve to supplement your retirement savings. Other avenues to save for retirement include real estate and life insurance.

It is important to recognize that an additional reason for developing buckets of money is the taxation of different buckets. Having buckets of qualified AND unqualified money is important in ensuring that your retirement portfolio is optimized. It is always good to consult with a tax professional on these topics.

Lastly, be sure to consider how Social Security will influence your retirement income. While there are going to be changes in how social security is used in the future, it will still be there. Maybe not in the way it has traditionally been in the past, but in some form or another.

Building buckets of money is a strategical plan that is built on an individualized basis. Be sure to talk with your financial professional or advisor about these things to ensure that what you are doing for retirement fits your individual situation. As always, your advisor works for you, so always call if you have any questions or concerns about your portfolio.

About the Speaker

Trent Hummel

David B. Wentz is the CEO of Tax Favored Benefits, Inc. located in Overland Park, KS.. David B. has been in the industry for over 25 years and brings a wealth of experience and knowledge to his clients. Upon graduating from the University of Kansas in 1989, David attended the University of Kansas Law School, where he graduated in 1992 with a Juris Doctor degree. Over his 25-plus year career, David has worked to build a national footprint. In addition, David has lead multiple insurance companies in Retirement Plan and Life Insurance sales. David also speaks at various professional and business seminars on the subjects of pension, profit sharing, 401(k), tax favored benefits, and investment programs.

Securities and investment advisory services offered solely through Ameritas Investment Corp. (AIC). Member FINRA/SIPC. AIC and Tax Favored Benefits, Inc. are not affiliated. Additional products and services may be available through David B. Wentz or Tax Favored Benefits, Inc. that are not offered through AIC. Securities email: dbw@taxfavoredbenefits.com


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