Holistic Financial Planning

Dr. Gerald House
6 min readJun 14, 2024


Holistic Financial Planning

Retirement Buckets and Guardrails

Have you ever pondered the most effective way to manage your retirement income? The ‘buckets and guardrails’ analogy in retirement planning is a captivating concept that can provide a sense of security. The bucket approach entails categorizing your retirement income into different ‘buckets’ for the drawdown period, with the order of these choices being of utmost importance. The guardrails approach acts as a financial safety net. It involves a continuous analysis of how your spending affects the drawdown of funds and triggers adjustments to maintain a balanced account. When these strategies are applied to your retirement, they can lay a solid foundation for your financial future, alleviating concerns about which bucket to draw from or whether you are approaching a designated guardrail.

Let’s break down the retirement bucket analogy. Imagine your financial situation as a set of buckets, each holding a different investment or retirement asset type. One bucket could be your deferred investments, like 401Ks, 403bs, or traditional IRAs. Remember, you must pay taxes when withdrawing money from one of these plans. Another bucket could be an Individual Brokerage Account. Throughout the year, you’ll earn interest and dividends. Taxes on this account are based on short-term gains, which means you’ll pay at regular tax rates. The individual brokerage account is the most inefficient bucket because taxes, including capital gains, are due on withdrawal and not deferred. The last common bucket to consider is the Roth IRA bucket. This is a bucket that holds investments “tax-free.” Naturally, this is the last bucket to draw money for retirement because you want it to continue to appreciate as long as possible. Understanding these buckets and their tax implications is crucial for making informed decisions about retirement planning and feeling confident about your financial future.

The Guardrail system, a tool to protect your retirement funds, is like having a financial safety net. It monitors your withdrawals in retirement and adjusts the percentage rate of withdrawals to compensate for market performance. Your withdrawal rate might increase when the market is doing well but decrease when the market is doing poorly. For instance, if your advisor determines you can safely withdraw 4% per year from your retirement investment accounts, he may set the guardrails as 20% above and 20% below the account value. This means you can withdraw up to 6% in a good market, but you may need to reduce your withdrawal rate in a down market. This can be a challenge for investors who have fixed annual expenses. If your clients withdraw too much, they could run out of money in retirement. Guardrails function as a financial ‘buffer’ to help you manage your withdrawals and protect your retirement funds, giving you a keen sense of security and peace of mind about your financial security in retirement. However, they do not solve the issues of the sequence of return risks (market volatility) or longevity risks (outliving your retirement income) without reducing your living expenses.

The hammer, screwdriver, and toolbox

In the financial planning field, there are three competing opponents. The first is the insurance-centric planner, whom we call insurance agents. They are the hammers. Hammers have one job — to hammer. Therefore, everything looks like a nail! At the opposite end of the spectrum, we have the screwdriver. These types of planners are your stockbrokers and planners who are stock-centric. Naturally, the screwdrivers solve their client’s retirement planning using only screws. Finally, we have the toolboxes. Toolboxes have various tools in their toolbox to use for financial planning considerations. We call these planners holistic planners because they use countless tools to help clients with retirement planning. Your holistic financial planner looks at more than the numbers to help you create a complete money management strategy.

Returning to the previous analogies, a holistic financial planner does not see your monthly income shortfall as buckets or guardrails but as an income problem. A holistic financial planner wants to solve the income problem, not just put a band-aid on it. If there is not enough income after retirement to meet your monthly expenses, you need to create your own pension plan that will last a lifetime for you and your family. After creating a pension, your remaining investments should function as a financial buffer to shield you in severe market downturns where you might have a shortfall or use it to fulfill legacy goals, such as providing for your family or philanthropic interests. Longevity risks and sequence of return risks are possible using a stock-only retirement plan. The last thing you want to worry about is running out of retirement income or subjecting your retirement income to the stock market’s volatility when you need the investments to meet living expenses.

The best way to build a pension after you retire is to use some of your investments to purchase an annuity. Remember, a holistic financial planner has a whole toolbox at his disposal. Work pensions and Social Security are annuities. An annuity can provide lifetime income for you and your spouse. Building a pension using annuities is a safe withdrawal strategy that solves running out of money or dealing with market volatility in retirement. You can also add a long-term care rider to this policy to provide long-term care for you and your spouse. An annuity is the right tool for the job. There are other ways to build income, like direct real estate investments, but real estate investments should start long before retirement. Immediate annuities can provide income for life. This annuity resolves outliving retirement funds or subjecting your retirement income to the stock market’s volatility. However, you must also account for inflation in your analysis. Inflation protection will require a higher initial investment into an annuity. Hopefully, partially annuitizing a portion of your investment portfolio will solve the income problem, allowing you to retire comfortably.

If your planner catches the income problem before retirement, an income annuity might answer the challenge of building a pension. Here, an index annuity is most appropriate. An index annuity participates in the stock market and can take advantage of upside gains, albeit with cap limits, while eliminating market volatility with its downside protection limits. You can take advantage of the gains without fear of losing money. It may also solve the inflation issue with positive gains. You can then “annuitize” (start drawing funds from the annuity) once you retire.

Annuities are not without fault. They limit upside growth compared to stocks and are illiquid; your money is not readily accessible. Your heirs rarely inherit the balance of funds if you die prematurely. This argument is weak, considering your heirs do not inherit your company’s pensions or Social Security either. However, their positive attributes in developing a pension plan outweigh their downside negative characteristics.

Holistic planning brings to the game a toolbox for financial planning. This toolbox allows for the right tools to get the job done. When retiring, a “safety first” approach is always best. Wade Pfau, Ph.D., in his book Safety-First Retirement Planning, goes into more detail about developing an integrated approach to retirement planning (Pfau, 2019). In Luke 14–28–30, the Bible talks about planning when Jesus expresses the cost of being a disciple.

For which of you, intending to build a tower, does not sit down first and count the cost, whether he has enough to finish it — lest, after he has laid the foundation, and is not able to finish, all who see it begin to mock him, saying, ‘This man began to build and was not able to finish’?

Your faithful servant.


Pfau, W. D. (2019). Safety-First Retirement Planning: An Integrated Approach for a worry-free retirement. Retirement Researcher Media.

The Holy Bible: NKJV New King James Version. (2016). Nashville, Tennessee: Holman Bible.