3 buckets for retirement approach

[BeamerBikes]

Curious what folks experience closer to - in retirement is like for tax management.  Is it really that big of a concern if you are fortunate to have such a nest egg?  

Heard about the 3 buckets approach once your retirement savings start growing significant over 100k.  

1st Bucket - Taxable Income - standard brokerage / savings.  You pay taxes on dividends and capital gains.  This Bucket is the first one that gets filled up for the tax man.  

2nd Bucket - Tax Deferred - IRAs or 401k - you didn't pay taxes on the way in, but you're paying taxes on withdrawals.  You have some flexibility in taking a tax hit on the withdrawals except when you hit RMDs.  This Bucket will be tapped if the tax hit isn't too bad from  Bucket #1, or if you have no choice. 

3rd Bucket Tax Free income - Roth IRA/401k - paid into with after tax dollars - all growth tax free.  You can tap this Bucket whenever 1 or 2 fills up your tax tolerance.  But once it runs out? You're limited in options.  

[+ FrankR]

5 hours ago, BeamerBikes said:

Curious what folks experience closer to - in retirement is like for tax management.  Is it really that big of a concern if you are fortunate to have such a nest egg?  

Heard about the 3 buckets approach once your retirement savings start growing significant over 100k.  

1st Bucket - Taxable Income - standard brokerage / savings.  You pay taxes on dividends and capital gains.  This Bucket is the first one that gets filled up for the tax man.  

2nd Bucket - Tax Deferred - IRAs or 401k - you didn't pay taxes on the way in, but you're paying taxes on withdrawals.  You have some flexibility in taking a tax hit on the withdrawals except when you hit RMDs.  This Bucket will be tapped if the tax hit isn't too bad from  Bucket #1, or if you have no choice. 

3rd Bucket Tax Free income - Roth IRA/401k - paid into with after tax dollars - all growth tax free.  You can tap this Bucket whenever 1 or 2 fills up your tax tolerance.  But once it runs out? You're limited in options.  

There are at least 3 “3 bucket” approaches I am aware of, with various flavors inbetween. 

Here is the most common one:

https://www.ncoa.org/article/your-retirement-portfolio-in-three-buckets

Tax is always a consideration when personal finance is being looked at - decisions can vary dramatically from state to state. Highly recommend you meet with an experienced tax focused CPA for a consultation - the right choices can save you big money.

[+ Vegas_Millennial]

My 3 buckets:

1. Roth retirement accounts.  Tax free withdrawals.  Invested 90% stocks and 10% bonds, through low fee mutual funds.  High risk but high reward.  This bucket is for long term play money.

2. Pension.  Subject to taxes.  Indexed to inflation.  Replaces my current income from retirement until death.  No survivor benefit.  Automatically raises with inflation each year.  This bucket is for daily living expenses.  It's stable and prodictable.

3. Real estate.  Right now I rent out rooms in my house.  I like this arrangement better than renting out an entire house.  I may not always go this, but it's nice to have.  I travel a lot, so having a housemate I trust who pays rent be there to watch the place while I'm away is a nice feeling.