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Well Balanced | Financial Planning, Bucket-Based Investing, Market Perspective, Wealth Management. A passionate and entertaining look at money and investing in and for retirement. For those that enjoy podcasts like Smart Money, On Investing, and BiggerPockets, Well Balanced is worth adding to your feed. Disclosures about our firm and this podcast. Vector Wealth Management is registered as an investment adviser with the Securities Exchange Commission (SEC). Registration as an investment adviser does not constitute an endorsement of the firm by securities regulators nor does it indicate that the adviser has attained a particular level of skill or ability. A copy of Vector’s current written disclosure brochure filed with the SEC discusses among other things, Vector’s business practices, services, and fees, and is available through the SEC’s website at: www.adviserinfo.sec.gov. All content in this podcast is for information purposes. Opinions expressed herein are solely those of Vector Wealth Management, our staff, and guests. Material presented is believed to be from reliable sources, however, we make no representations as to its accuracy or completeness. All information and ideas should be discussed directly and in detail with your financial advisor prior to implementation. This podcast and related content are not intended to render personalized investment advice, nor should it be viewed as an offer to buy or sell, or a solicitation of any offer to buy or sell the securities or strategies discussed. Please note that neither Vector Wealth Management nor any of its agents give legal or tax advice. The firm is not engaged in the practice of law or accounting. Charts, graphs, and returns do not represent the performance of Vector Wealth Management or any of its advisory clients. Returns do not reflect the impact that advisory fees and other expenses would on the results. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be suitable or profitable for a client’s portfolio. All investment strategies have the potential for profit or loss. Past performance is not indicative of future performance. Visit vectorwealth.com/regulatory for the firms form CRS and ADV.
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Friday Jan 10, 2025
Friday Jan 10, 2025
When it comes to withdrawing from your portfolio, timing is everything. During your working and saving years, the average annual return over time is what matters most since you’re not actively withdrawing funds. However, as you approach retirement and begin drawing from your portfolio, the sequence of returns—the order in which market gains or losses occur—takes on much greater importance. Poor returns experienced early in retirement can significantly impact the longevity of your savings.
At Vector Wealth, we use a bucket-based approach to planning and investing. This strategy segments your investments into different “buckets” based on your time horizons and financial goals. By aligning withdrawals with specific investment buckets, this method helps mitigate the risks of a poor sequence of returns.
How It Works: A Practical Example
Imagine a recently retired 65-year-old couple with a $3 million portfolio. They plan to withdraw $120,000 per year for living expenses. Using our bucket-based approach, we would set aside three years’ worth of income needs—$360,000—into very conservative investments. This first bucket serves as a buffer for their immediate withdrawal needs.
Now, let’s examine two potential market scenarios: one good and one less favorable.
Scenario One: A Positive Market Sequence
In the first scenario, the stock market rises for two consecutive years. During this time, the withdrawals occur, and the first bucket begins to be spent down. As markets moved higher, we rebalanced the portfolio and “reloaded” the first bucket to maintain the three-year buffer for future withdrawals.
Scenario Two: A Negative Market Sequence
In a less favorable scenario, markets decline during the couple’s first few years of retirement. Withdrawals still occur, and the conservative bucket is drawn down. However, since markets are down, we delay reloading this bucket, giving the longer-term investments time to recover. By not selling stocks during a market downturn to fund withdrawals, we avoid locking in losses. Once markets recover, we resume rebalancing and reestablishing the three-year buffer.
The Benefits of a Bucket-Based Approach
Why do we use this strategy?
- Market Unpredictability – Stock markets are volatile in the short term, and no one can predict their movements. A bucket-based approach helps you plan for uncertainty.
- Peace of Mind – Withdrawal needs are thoughtfully planned and matched to specific investments, providing clarity and confidence.
- Limit Emotional Decisions – Having a structured plan in place helps prevent making emotionally charged decisions.
By aligning your withdrawal strategy with a bucket-based approach, you can maintain your lifestyle while safeguarding your portfolio against the risks of a poor sequence of returns.
To learn more about the sequence of returns and other financial planning topics, visit us at vectorwealth.com.
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vectorwealth.com/regulatory for more about our relationship with you and this informational and educational content.
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