Retirement income strategies that work!
Most retirees keep the bulk of their savings in tax-deferred accounts like 401(k)s and IRAs. That can create a tax time-bomb when it is time to withdraw. This guide introduces Greg Parady’s simple “Red, Yellow, Green” model for organizing your nest egg by tax status and shows how diversifying across these buckets can boost after-tax income and reduce stress in retirement.
The three “tax buckets,” explained in plain English
Think of your retirement assets as crops you planted years ago. They grow into three categories:
Red assets equal tax-deferred money such as IRAs, 401(k)s and similar plans. You got a deduction on the “seeds,” your growth was tax-deferred, and every harvest dollar is taxed as ordinary income when you withdraw it.
Yellow assets equal after-tax money in bank or brokerage accounts. You pay taxes as you go on interest, dividends, or realized gains.
Green assets equal tax-free or tax-favored money. You pay tax up front on the seeds, then enjoy tax-free growth and tax-free access if structured properly. Examples in the book include Roth IRAs and properly designed Modern Life Insurance™.
The punchline: a balanced mix of Red, Yellow and Green lets you manage taxes and withdrawals with more control in retirement.
The hidden risk of a 100% tax-deferred (all-Red) portfolio
If almost everything sits in Red, you are carrying a silent IOU to the IRS. You know tax is due, but you do not know how much until the year you withdraw, since Red withdrawals stack on top of your other income and can push you into higher brackets. The book calls that uncertainty out directly, noting there is “no simple way to calculate” the true cost until distribution, which is often when you need the money most.
It gets worse for surviving spouses. In the Widow’s Penalty example, a couple with $108,000 of income pays about 8% effective tax while married, yet the surviving spouse with the same gross income faces about a 15% effective rate due to single filing status and surcharges. That is a near doubling of the tax bill in the book’s illustration.
Required withdrawals and “stealth taxes” (for example, more of your Social Security becoming taxable or higher Medicare surcharges as income rises) are the mechanics that often trigger the surprise. The cure is proactive tax planning, not last-minute reacting.
Turning Red assets Green: when to reposition for tax-free income
The book lays out a practical roadmap: begin partial moves from Red to Green during lower-income years and before required withdrawals begin. Two Green builders highlighted are Roth conversions and Modern Life Insurance™.
- Roth conversions: pay known tax now so the growth and future withdrawals can be tax-free for life, with no required distributions and more favorable treatment for heirs. The text emphasizes the long-term edge of tax-free income and its insulation from surcharges, along with the flexibility to convert in pieces over multiple years.
- Modern Life Insurance™: when designed correctly, it can provide tax-free living benefits, a tax-free death benefit, and optional access for long-term care needs. In the case study, $300,000 of premiums supported a $1,000,000 tax-free benefit with significant available LTC acceleration. This tool can also offset taxes beneficiaries may face under today’s rules for inherited IRAs.
Timing matters. The book repeatedly encourages acting in advance, ideally while both spouses are alive and healthy, so you can move dollars at favorable rates and reduce the widow’s future tax exposure.
Why multiple income streams beat one big nest egg
Retirement is lived monthly. Households pay bills and enjoy life with predictable monthly income, not a quarterly account statement. That is why the happiest retirees in Greg’s experience are those with pensions or pension-like income that covers needs and wants every month.
To create that reliability, the book positions Modern Annuities® – especially fixed indexed annuities, as a “retirement seatbelt.” Your principal is protected from market crashes and you can add guaranteed income for one or two lives. During volatile times, that seatbelt can keep you calm and on plan.
The strategy many readers land on is a blend:
- Use Modern Annuities® for the income floor.
- Build Green pools with Roth and Modern Life Insurance™ for tax-free flexibility.
- Keep Yellow for liquidity and opportunistic spending.
This mix supports lifestyle today and strengthens survivor planning tomorrow.
A simple 5–10 year repositioning plan
- Map your buckets by listing assets under Red, Yellow, Green. Note which accounts will create taxable income when tapped.
- Fill your income floor with Social Security plus pension-like checks from Modern Annuities® so monthly needs and a portion of wants are covered.
- Convert Red to Green in slices. Use annual Roth conversions that keep you within a target bracket. Consider Modern Life Insurance™ if you want tax-free survivor protection, LTC flexibility, or estate equalization.
- Pressure-test survivor taxes now. Model the Widow’s Penalty using the book’s framework and close the gap while both spouses can act.
- Review annually in the Parady Learning Lounge® and adjust the pace as life, markets, or tax rules evolve.
The goal is simple: more after-tax, predictable income with fewer surprises, so you can Make Your Next 10, Your Best 10!® and live Your Life, Your Way℠.
FAQs About Balancing Tax-Deferred and Tax-Free “Buckets”
What are Red, Yellow, and Green assets in retirement?
Red are tax-deferred accounts like IRAs and 401(k)s, Yellow are after-tax accounts taxed as you go, and Green are tax-free or tax-favored assets such as Roth IRAs and properly structured Modern Life Insurance™.
Why is an all-Red portfolio risky?
Every withdrawal is taxed as ordinary income, you do not know the exact bill until you take the money, and the added income can affect Social Security taxation and surcharges.
How do I turn Red assets into Green?
Consider partial Roth conversions over multiple years and evaluate Modern Life Insurance™ for tax-free benefits if designed correctly. Both are featured as “Green” builders in the book.
What is the Widow’s Penalty?
A surviving spouse often pays more tax on the same income due to single filing status and surcharges. The book’s example shows an effective rate jump from about 8% to about 15% without planning.
Where do Modern Annuities® fit?
They act like a retirement seatbelt by protecting principal and offering guaranteed lifetime income, which supports monthly budgeting and relieves market stress.
