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August 30, 2010


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Having to sell investments during retirement would really bum me out. Doing all that work and then watching your principle dwindle away. It's definitely an unsettling though. Hopefully I can make enough outside of the principle that I don't have to withrdaw any.

I'm currently reading "The Buckets of Money Retirement Solution: The Ultimate Guide to Income for Life" by Ray Lucia ( I had just finished reading his older book "Buckets of Money". Lucia has an approach similar to the "Missing Manual" book above.

Here's my very simplistic overview: Lucia proposes three "Buckets". A short term bucket (say 5-7 years) with cash and laddered CDs, an intermediate term bucket (7 to 12 years) with longer term CDs and managed bonds, and a long term bucket (over 12 years - with equity and real estate). He proposes you use bucket #1 first. When bucket #1 is depleted, turn bucket #2 into a new bucket #1 and deplete it. Bucket #3 stays invested for the long term; withdrawing partially to begin a new bucket #2.

This approach has much appeal, as your immediate future is more secure and you can feel more comfortable letting your equity investments ride out a bear market. You don't "have to sell" equities every year and you don't do what Ray Lucia calls "reverse dollar-cost averaging".

The only part of the buckets of money plan I dislike is the strong pitch for annuities to supplement the first two buckets. I'm not a fan of annuities, but Lucia does make some good points about how they might fit into someone's retirement plan.

As much as you need a plan to save for retirement, you also need a plan on how to take out money in retirement. Studying the tax code and understanding what you need to do and how to take your money out to minimize taxes is the goal and necessary.

As in my fathers case since he turned 70 1/2 and needed to start taking money out of his traditional IRA he felt that it would be wise to have an accountant to look at this and advise him what is the best.If he did not take enough out he would be penalized. Too much and he is paying too much in taxes.

This is probably prudent in that in 20 years the tax code will change when i am thinking of retiring and who know what I will need to do to minimize issues.

Very informative post. Right now, I am in the accumulation phase of my life, putting money away for retirement so I haven't thought too much about taking money out. This seems like a good strategy for balancing the need for short term stability with the fact that you still need to allow your money to grow in retirement.

It seems like a variation of this strategy would make sense for savings, too. For instance, use a money market for short term needs/emergency fund, use a short/intermediate bond fund for medium term goals like saving for house down payment or other large purchases, and use some equity type fund for long term goals like college or retirement.

I am over 70 1/2 and so is my wife. We have no choice whatsoever this year but to take almost $150K out of our IRAs and pay taxes on the withdrawal. This is mandatory. In our case we have some withheld for state and federal taxes and the rest goes into our Trust account which is taxable. We don't have to actually sell any investments, aside from money for the tax withholding, we can just transfer shares from one account to another.
The good thing is that the money withheld for taxes, even though it is only taken out late in the year, is treated by the IRS and the State as if it were received in monthly instalments throughout the year, so there are no extra penalties or interest for not making quarterly tax payments.

I can live easily on my SS and 2 small pensions, even saving some in the process. In the 4-5 years since retirement, I have withdrawn over $15k and am only down $2k. This is because I do not do monthly withdrawals. In mid-December each year, except for 2009, I withdraw whatever I need to do a fix on my home. This keeps interest accumulating. (Usually I only withdraw the minimum.)

I will be okay for a few years, but things are not going to stop going up in price. In fact, the value of my income will drop considerably with all the price raises. That's why I am trying to save almost 25% of my SS & pensions. This should keep me going for a few years. After that, I will take each day as it comes. I do not have a fortune, but I feel God has blessed me exceedingly and I am thankful for what I did get saved.

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