Annual Retirement Bucket Review
Refill near-term cash from suitable assets and coordinate withdrawals with taxes
- Difficulty
- Moderate
- Time to result
- ~ongoing to results
- Steps
- 5
- Confidence
- 95%
The review is a once-a-year checkpoint that joins spending, portfolio maintenance, and tax planning. First calculate the current withdrawal rate and estimate what the portfolio can support in the coming year. Then inspect the cash bucket used for day-to-day spending and measure how much was depleted. Review the rest of the portfolio to select an appropriate source for replenishing that cash, rather than selling assets automatically. At the same time, handle maintenance and tax obligations, including deciding where required minimum distributions should come from. The output is a replenished spending reserve and a coordinated plan for the next year, while retaining the flexibility to change after unusual events.
Origin
Extracted from Masters in Business
Core principles
- 01Review retirement income holistically once a year
- 02Connect next year's spending to portfolio capacity
- 03Refill depleted cash from an appropriate portfolio source
- 04Coordinate portfolio maintenance with tax obligations
How to run it
- 1
Check the withdrawal rate
Calculate how much of the portfolio was withdrawn and compare it with what the assets can support in the year ahead.
Pro tip Review the spending plan and portfolio in the same session.
- 2
Audit the cash bucket
Measure how much cash was used for spending during the previous year and how much must be restored for the next one.
- 3
Choose a refill source
Examine the portfolio and decide which suitable holding or cash flow should replenish the spending bucket.
Pro tip Use the choice as part of portfolio maintenance rather than making it in isolation.
Watch out Do not assume the same asset is the right source every year.
- 4
Coordinate taxes
Include tax planning in the review and determine the source of any required minimum distributions.
Watch out Tax rules and individual circumstances require qualified advice.
- 5
Set the next-year plan
Finish with a funded cash bucket and an explicit spending plan for the coming year.
Watch out Revisit sooner if circumstances materially change.
In the wild
After a year of retirement spending, a retiree finds that the cash bucket has fallen below the amount needed for the coming year. During the annual review, the retiree checks the withdrawal rate, reviews the portfolio for a suitable refill source, and coordinates the decision with required distributions and other tax planning.
→ The next year's spending is funded through one coordinated portfolio-and-tax decision.
Common mistakes
Reviewing spending alone
Separating the budget from portfolio maintenance and taxes can create avoidable, conflicting decisions.
Refilling cash automatically
The approach calls for reviewing the portfolio and choosing a suitable source rather than pulling from the same place by habit.
Is it for you?
Best for
It is best for retirees using a cash bucket alongside invested assets to fund near-term spending.
Not ideal for
It is not ideal as a substitute for more frequent attention after a major life, market, or health change.
From the transcript
“I like the idea of doing it once a year as kind of a holistic strategy where you're checking up on your withdrawal rate.”
“If you've spent from that cash bucket in the previous year, you're also looking at your portfolio and deciding, well, where is the same place…”
“And you're also doing a little bit of tax planning as well, so if you're subject to required minimum distributions, for example, you're figuring out…”
From the episode
At The Money: The Right Way to Spend Your Money in Retirement