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Case Study: How We Helped a Couple Plan for Retirement Using Our 4 Buckets Income Strategy

By Greg Lohr, MBA and Ethan Lohr, CFP®

Many of our clients come to us with concerns about running out of money in retirement. The concern is so prevalent that 56% of Americans cite retirement income sustainability as one of their top fears. (1) At Lohr & Company, we strive to provide solutions to this universal concern and ease our clients’ minds as they enter their golden years. That’s why we’ve developed the 4 Bucket Income Strategy. Below is a case study outlining how it works and what it can do for your retirement security.  

The Client

We’ll call this couple the Boomers. They had a profile typical of corporate America. The husband was a longtime employee of a Fortune 500 company and spent nearly four decades working in a management capacity. The wife worked at a local boutique which provided a modest income supplement. The Boomers were in their early 60s and had one adult daughter in her 30s. They owned their home outright and had no debt whatsoever.

The Goal

The Boomers came to us with questions about healthcare costs and coverage, how and when to claim Social Security, and how to ensure they would have a sustainable income stream throughout retirement. They wanted to retire at full retirement age without having to worry about running out of money.

They also wanted to review their estate plan, as their daughter was listed as the sole beneficiary of their assets and the Boomers were concerned about how she would manage this after they passed. 

The Process

Since the Boomers’ main concern was how they would maintain a steady income stream in retirement, we started their plan with our 4 Buckets Factfinder.
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Through this process, we found that the Boomers had $855,000 in investable assets, $330,000 in cash and $525,000 in the husband’s 401(k). The 401(k) funds were invested in a current-year target-date fund with a 56%/23%/21% allocation to stocks, bonds, and cash, a typical allocation among pre-retirees. The idea is to reduce risk in order to guarantee assets to draw from in the future. But with such a large allocation toward cash, and inflation levels historically high, some degree of risk is necessary to produce income and maintain purchasing power over the length of retirement. This is something we wanted to address in our plan for the Boomers.

After determining the Boomers’ current investment allocation, we walked them through our 4 Buckets framework to help them visualize their income strategy for retirement. Rather than thinking about retirement savings as one large nest egg, we encourage our clients to think of their income in predefined buckets. In doing so, it helps reduce psychological biases and inefficiencies, promoting smarter investment decisions and a stronger retirement foundation.

We helped the Boomers define their income buckets, placing $80,000 in the Emergency Reserves bucket, drawing $3,628 in the Social Security/Pension income bucket, 3.5% annual withdrawals from their Stable Income bucket, and 3% annual withdrawals from their Lifestyle Enhancement & Legacy bucket. 

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The Outcome

After building out the 4 Bucket Income Strategy, we were able to:

1. Meet and exceed the monthly income need of the Boomers: They will receive $5,484 per month in retirement, compared to the $5,000 need defined on the 4 Buckets Factfinder.

2. Provide guaranteed* income from their assets: The Boomers will be able to take guaranteed distributions from assets in Bucket 3. Overall, 75% of the Boomers monthly income is met from pension-like assets in Buckets 2 and 3 which means greater income confidence and peace of mind.

*How is income guaranteed? Bucket 3 is comprised of assets in a variable annuity with a living benefit rider. Here’s what that means: we structure an underlying investment portfolio that is heavily geared towards growth, allowing for income and principal to increase. This portfolio is wrapped in an insurance contract called an annuity. The contract provides guaranteed income (living benefit) backed by the insurance company for as long as the owner or joint owners are alive. Beneficiaries receive the market value of the investment portfolio at death. Guarantees extend to the claims-paying ability of the issuer, and guarantees do not apply to the value of the subaccounts (investment portfolio) that will fluctuate with market conditions.

3. Substantially increase risk in portfolios: By diversifying the income allocations, we were able to allocate more money toward equities (stocks and ETFs). This provides a much greater opportunity to generate income and wealth for the future.

4. Set up a plan to convert tax-deferred assets to Roth assets: By converting more assets to tax-free assets, the Boomers are set up to keep more income in their pockets over time.

5. Continue investing throughout retirement: As cash (Bucket 1) exceeds their necessary $80,000 emergency fund level, the Boomers can continuously reinvest the excess to generate more income and wealth throughout retirement.

How the 4 Buckets Income Strategy Can Help You

If you are a pre-retiree or retiree with worries about sustaining your income throughout your golden years, the 4 Buckets Income Strategy could be right for you. At Lohr & Company, our goal is to help our clients retire with confidence instead of fear. To learn more about how we can help, schedule a complimentary introductory meeting online or reach out to us at 434-260-6742.

About Greg 

Greg Lohr founded Lohr & Company, a multi-generational financial advisory firm, in 1993 to help more people plan for a rewarding, well-deserved retirement. Before he entered the financial services industry, he worked as an electrical engineer. But after spending a few years as an engineer, he decided to follow his heart and return to school for an MBA in finance from the College of William & Mary. Although he originally entered the finance industry because he was excited about the personal opportunities, it was the satisfaction of seeing people at peace with their money that has kept him here for his entire career. He is passionate about building lifelong relationships with his clients and walking with them as they navigate financial decisions and milestones.

When he isn’t working, Greg enjoys spending time with his beautiful wife and their adult children. In addition to managing their family farms, Greg and his wife also manage a growing Airbnb venue. In the cold weather months, you can find Greg hunting whitetail deer in the breathtaking Virginia landscapes. To learn more about Greg, connect with him on LinkedIn.

About Ethan

Ethan Lohr always knew his dream was to follow in his father’s footsteps and carry out his same mission: to help more people find financial peace and security in retirement. Ethan started practicing for his future career quite early, at the age of 6, advising his sisters on their savings with the help of his trusty calculator. But it wasn’t until he graduated from James Madison University that he truly began developing his talent as a financial advisor at Lohr & Company. Ethan is a CERTIFIED FINANCIAL PLANNER™ professional.

Ethan is most fulfilled when he’s helping clients develop a sound plan and then executing that plan. He knows that pre-retirees often have many unanswered questions and may be feeling trepidation about retirement—and rightfully so. Retirement is one of life’s greatest transitions and Ethan knows how important it is to get everything right the first time. He works to ease his clients’ fears, provide them with confidence, and help them take the necessary actions to move forward. 

When he isn’t serving clients, Ethan enjoys spending time with his wife and two sons. You can also find him practicing his swing on the golf course, exercising, and hunting with his dad. To learn more about Ethan, connect with him on LinkedIn.

Actual performance and results will vary. These case studies do not constitute a recommendation as to the suitability of any investment for any person or persons having circumstances similar to those portrayed, and a financial advisor should be consulted regarding your specific situation.

​​Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Advisor. Fixed insurance products and services offered through Lohr & Company, LLC or CES Insurance Agency.

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(1) https://www.nirsonline.org/wp-content/uploads/2021/02/FINAL-Retirement-Insecurity-2021-.pdf

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