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At Virtus Wealth Management, your Southlake independent financial advisors, we help our clients prepare for a financially-secure future by developing long-term strategies that focus on the “big picture” versus short-term gain, thereby managing risk.

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Virtus Wealth Management is the product of a 2016 merger between two well-established Texas wealth management firms.

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Wealth management is more than just investment advice – it includes all aspects of a client’s financial life.

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Wealth management is more than just investment advice – it includes all aspects of a client’s financial life.

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At Virtus Wealth Management, we believe we can help you no matter what age you are, what life stage you are in, or how much money you are working with. We want you to feel educated, empowered, and involved in the planning of your financial future.

Retirement Income – Why The Bucket Strategy Is Important

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  • Retirement Income – Why The Bucket Strategy Is Important

by | Feb 17, 2023

Here at Virtus Wealth Management, we often talk to our clients about building multiple buckets in their portfolio to facilitate investing along the way, spending down the road, and flexibility for both.

The investing buckets are after-tax, tax deferred, and tax free.

  • The after-tax bucket gives you flexibility to retire early (pay for living expenses prior 59.5 penalty free without withdrawing from tax deferred accounts), to consider Roth Conversions at a low marginal tax rate during this timeframe ultimately reducing your Required Minimum Distributions (RMD) later on, to defer Social Security, and to delay withdrawing from your tax deferred accounts in general.
  • The tax deferred bucket (traditional 401k, IRA, etc.) allows you to defer taxes while you are earning income at your highest marginal tax rate and to defer taxes on growth until you are required to start taking withdrawals at 72 (RMD).
  • The tax-free bucket (Roth 401k, Roth IRA, etc.) allows you to pay taxes up front while the growth from there is tax free indefinitely as there are no Required Minimum Distributions (RMD). This is very powerful especially early in careers when earned income is low and/or while using the Roth Conversion strategy described above.

The income buckets are fixed/stable spending and discretionary/variable spending.  We use these buckets to help our clients quantify their spending patterns and build a paycheck like experience to increase our client’s quality of life in retirement and decrease the risk of running out of funds.

  • The fixed/stable spending bucket can be addressed by using protected income sources like Social Security, Pension, and/or a protected lifetime income product. It can be comforting to have a stable income source regardless of what’s happening with the market, economy, or political environment especially for fixed spending needs.
  • The discretionary/variable spending bucket can be addressed by keeping a portion of the portfolio in income producing assets. These assets will vary in performance, but since they are for discretionary purposes, withdrawals can be controlled during turbulent times, if necessary, helping manage long-term goals.

The chart below is an example of structuring a portfolio to match an investor’s goals in retirement.

Retirement Income – Why the bucket strategy is important.

For illustrative purposes only. Fixed income is subject to interest rate risk. Fixed income prices generally fall when interest rates rise. The price of equity securities may rise or fall because of changes in the broad market or changes in a company’s financial condition, sometimes rapidly or unpredictably. Investing in alternative assets involves higher risks than traditional investments and is suitable only for the long term. They are not tax efficient and have higher fees than traditional investments. They may also be highly leveraged and engage in speculative investment techniques, which can magnify the potential for investment loss or gain.
*Equity, fixed income and cash are considered “traditional” asset classes. The term “alternative” describes all non-traditional asset classes. They include private and public equity, venture capital, hedge funds, real estate, commodities, distressed debt and more.
Source: J.P. Morgan Asset Management.

In summary, here at Virtus Wealth Management we use a combination of investing buckets, income buckets, and strategies to help our clients understand and have confidence in how they are going to pursue their retirement goals, grow their portfolios long-term, and spend their retirement assets when the time comes.  If you would like more information or support implementing the strategies above, we are here to help!

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

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