Details of your buckets

[nun]

I'm 5 years from ER and beginning to switch from a mind set of accumulation and capital growth to one of income and principal protection. I like a bucket approach as way to think of/organize my money so do you have any sample portfolio? My current thoughts are

"Safe" investments ( 5 year horizon): one year's expenses in cash, 4 years in CDs
"safeish" investments (5-10 years): 5 years in a mix of high quality intermediate corporate bonds, Bond index, maybe some dividend stocks or Wellesley.
"risky" (10 years plus): US and international equity index, Wellesley and bond index to keep my total AA around 50/50

 

[TN_INVEST]

I'd put some REITS, preferred stocks and some utility stocks in there.

 

[GetNclose]

Right now I am 0-3 years from FIRE.

I have a 2 bucket approach that I am working on.

Bucket 1: 10 yrs of laddered Muni Bonds, CDs, and Cash
Bucket 2: 60% stocks, 30% Bonds, 10% Real Estate

My plan is to move cash out of Bucket 2 and into Bucket 1 any year that the Bucket 2 grows by more than 6%.

The objective is to sleep well, never sell low, and have assets last for 40 yrs.

I don't consider myself an expert so would appreciate others approaches and suggestions.

 

[Independent]

I think of buckets in terms of uses.

One bucket needs to support our long term basic spending. It turns out that if we defer SS to 70, then SS fills that bucket.

A second bucket needs to fill the gap between retirement @59 and the start of SS. That was laddered CDs and I-bonds. The I-bonds have no market risk and (since I bought them a while ago) guaranteed inflation plus.

The third bucket covers nice-to-have spending and unforeseeables. It includes a non-COLA'd pension. I figure the decreasing purchasing power over time is reasonable for nice-to-have stuff in retirement. It also has a chunk of TIPs which I figure at least gain a little against inflation over time and should have only modest market price fluctuations. So they fund the "unforeseeable" spending.

 

[Animorph]

I'm nominally 100% equities, but sell equities for cash when the portfolio is exceeding expectations and buy equities with cash, minus about a year's expenses, during bear markets. If everything goes as planned, I'm just selling off equities as needed to meet expenses (the total return approach) and not carrying a significant cash allocation. I can't stand having a long-term cash or bond allocation when equities should perform better, but don't mind a temporary cash balance to smooth out the dips. I have about 13% cash right now, raised during the last market peak. I'll either be spending it in the next few years while leaving the equities untouched, or reinvesting portions of it if the market drops into bear territory or worse.

 

[walkinwood]

I don't use buckets, but if you're interested in what I do, please read on.

I use a single portfolio with a 60/40 equitiy/fixed mix. Part of the fixed mix is cash for 1 year. Short Term bonds account for a large portion of the fixed mix, so there is a lot of stability there.

For expense purposes, I divide my portfolio into baskets (didn't want to use the word buckets). One is for my annual expenses which I set at 4% of the basket value on Jan1. The 2nd is an emergency basket from which I take/put back as needed. I had a 3rd one for my mortgage. This was calculated as the amount of money I needed to pay it back using a NPV calculation with a conservative return assumption. I paid off the mortgage.

This is just one of many ways... to each their own.

 

[teejayevans]

I would use MM/Short Term Bond Idx/CDs for 1-4 years
Wellesley, Balance Index for 5-8 years.
Throw in a combo of equity, bond, REIT funds for the rest.
Rebalance when market is up.
Sit back and relax.
Tom

 

[LOL!]

I have a bucketless portfolio, but check it out and see how you can call it buckets if you like.

1. 15% is in short-term bond funds such as VCSH, VBIRX. You might call that 3 to 5 years worth of "safe" investments.

2. 16% is in intermediate term bond funds such as PTRAX, FBIDX, VFIJX. You might call that 4 to 5 years of "safeish" investments.

3. 62% is in equities. You might call that "risky" investments.

4. 7% is in commercial real estate. This is something not quite stock, but also not quite bond. Call it whatever you like.

I call it all a standard asset allocation of 31% US stocks, 31% foreign stocks, 31% bonds, and 7% commercial real estate.

 

[REWahoo]

I had a bucket portfolio a couple of months ago. Now it's a blended portfolio: one bucket of cash, one coffee can of bonds and one tuna can of stocks...

 

[67walkon]

I get buckets, but don't normally look at it that way.

Our buckets are:
1. Commercial rental property generating $72,000 net per year. We're negotiating to get it up to around $84,000. This should be good for about 10 years and then we'll sell it for somewhere between $750,000 and $1,000,000
2. Another 7+ years payout on something we sold at $95,000 a year.
3. Savings and retirement accounts are now just at $1,100,000 and generating about $40,000 per year.
4. A non income generating commercial property that is listed for $500,000 and we would be very happy with $300,000.

My thoughts are that we can live at the same level or better than we live right now, with me making a 6 figure income, on the rent and payoff for the next 7 years. In 7 years, I'll be pushing 69, and will probably take SS at that point. My DW will be 64 and might as well take her SS at that point. I can't figure out how we would ever run out of money! But we are adding about $175,000 to the retirement kitty this year and it is really, really hard to walk away from that. On the other hand, we're not getting any younger! DW is retired and I'm pretty much sick of lawyering. We live so far below our means that it is comical. I'm driving a Subaru and DW is driving a Nissan. Hers is 3 years old and paid for. Mine is 1.5 years old and paid for by my company. Health insurance is the main thing I don't have a "bucket" for.

This is a great forum!

 

[easysurfer]

I'm probably old fashioned, but isn't buckets like asset classes? Cash bucket, bond bucket, domestic stock bucket and intl stock bucket. Therefoe, lowest risk to highest.

Now a bucket of popcorn or something..that's a whole different category

 

[teejayevans]

Buckets is simply matching your investment types to time horizon.
ie. Money you need next year should be in MM or CD and money you won't need till retirement should be in equity like investments, bonds are somewhere in between.
This allows you to not have to take money out of your stock funds when the market is down.
Its not an arbitrary way of grouping your investments, and there are those to try to complicate it, but it's really simple as that.
TJ

 

[Meadbh]

Yabbut....what if there's a hole in your bucket (Dear Henry)?

There's a hole in my bucket - YouTube

 

[Alan]

We have various income streams and use cash buckets to cover the shortfalls.

Non-COLA pensions covered ~70% of expenses first year, dividends from Wellesley made up ~20% and bank savings withdrawals made up the rest.

Years 2-4 will be maturing CD's making up the shortfall that pensions and dividends leave.

Years 5-7 will be cashing in I-Bonds.

Year 8 DW's SS starts, plus VG TGT 2010 dividends from IRA.

Year 11 another UK private pension starts. (COLA'ed )

Year 13 UK SS starts.

Year 16 my US SS starts.

We have enough I-Bonds to fund the difference from year 5 for ~15 years if needed.

 

[mathjak107]

bucket 1 22% cash,cd's

bucket 2 40% bond funds. right now though they are less interest sensitive stuff. fidelity high income, fidelity floating rate loan,vanguard short term bond,fidelity conservative bond fund

bucket 3 38% equities,untraded reit fidelity low priced stock fund,fidelity strategic dividend and income,a total international fund
buckets are strategy right though retirement.

the idea is you never want to sell equities to raise cash when your down.

we never had a 15 year time frame where you didnt get a new high at least for a bit so using 15 years as a time frame the idea is to have enough in withdrawls avaiable to get you through a 15 year time frame.

unlike a conventional mix where you re-balance based on growth this gets rebalanced based on years of money left.

 

[Dances With Fire]

I would use MM/Short Term Bond Idx/CDs for 1-4 years
Wellesley, Balance Index for 5-8 years.
Throw in a combo of equity, bond, REIT funds for the rest.
Rebalance when market is up.
Sit back and relax.
Tom

+1

This is very close to how DW/ I have set as a target, although we are looking at a few more years until ER than you. So I look at AA more than buckets @ this point.

 

[rescueme]

The only "bucket" we're concerned about at this point is the one that contains cash, and is what we can use for current retirement expenses (retired 4+ years; DW still to follow - even tomorrow if she wishes), ignoring market flux.

Depending on how you measure it, we currently have between five and seventeen years in cash, backed up by many years in bond holdings which may have flux, but expected quite less than equities. The reason for the variance is due to our age (63+) and additional income sources coming "on-line", starting in less than two years and continuing to increase over the next 6.5 years (two small pensions, our respective SS at ages 66/70, and my claim against DW at age 66). The five year amount covers our entire budget/expenses if DW would retire today and without any further income sources. The seventeen year amount is if DW decides to work till FRA age, some 2.5 years from now.

The rest of our joint portfolio? It doesn’t really matter in these days. Since we've been fortunate to hit "our number", and have income regardless of market flux. While our equities currently are at 46%, we have no plans to buy (nor sell, unless excessive expected gains are made as they were earlier this year).

It's amazing to us to see these stories of folks that are retired and need to sell/lock in losses just to cover retirement expenses due to a lack of cash or high equity holdings. There was another one (ABC News) on within the past few days of a (retired) couple that ABC is following during the downturn, this year. IMHO, they either received poor advice from their "advisors" or just held on to equities for too long, regardless of their age. Preparation for retirement income should take place before you retire, not after IMHO. Remember, in retirement - cash flow is everything...

Just our story...

 

[TN_INVEST]

I had a bucket portfolio a couple of months ago. Now it's a blended portfolio: one bucket of cash, one coffee can of bonds and one tuna can of stocks...

I like it.

I know a lot of folks invest in precious metals (mainly gold). Me, I've been stockpiling other metals (mainly brass & lead). I figure if I have brass and lead, I can procure some gold if push comes to shove.

 

[Sarah in SC]

W2R suggested I post this article here, as you all were discussing your buckets. It is a nice concise description of the bucket method and its benefits.
Enjoy!

[FONT=&quot]lifetime-income-strategies-kiplinger: Personal Finance News from Yahoo! Finance[/FONT]

 

[REWahoo]

[FONT=&quot]lifetime-income-strategies-kiplinger: Personal Finance News from Yahoo! Finance[/FONT]

Very timely. It's almost as if Kiplinger was reading this forum...

 

[teejayevans]

I like it.

I know a lot of folks invest in precious metals (mainly gold). Me, I've been stockpiling other metals (mainly brass & lead). I figure if I have brass and lead, I can procure some gold if push comes to shove.

This is for you:
Bullet Forge | "Bulletforge, The World's most Expensive Bullets ©"

TJ

 

[megacorp-firee]

IMO, everyone's mileage will vary depending upon circumstance.

Here is the environment we are working within:
1) non cola'ed pension that covers all living basics (current lifestyle). You can only imagine how comfortable that make it (at least for the time being (i.e. non cola'ed part).
2) own home, no mortgage, pay off credit card bills every month

Our 'buckets', if you will:
1) 5 years of cash and cd's that equal the budget for travel and extravagances we enjoy.
2) Portfolio allocation (that includes the above btw) of 40/60, Equity/Fixed
all in etf's, mutual funds that represent total stk mkt, total int'l stk mkt, stable funds, infl prot bonds, total bond mkt, reit's, and a smattering of commodities

Hope this helps.

 

[LOL!]

Glanced through the Kiplinger article. It has

What's more, when making their inflation-adjusted withdrawals, retirees following the 4% rule tend to sell more shares when the stock market is down and fewer shares when it's up — a reversal of the "dollar-cost averaging" approach, in which investors regularly buy a set dollar amount of stocks so that they'll buy more shares when prices are low. "Dollar-cost averaging out of the market is the worst thing to be doing during retirement," says Paul Grangaard, a St. Paul, Minn., adviser.

I don't quite follow that paragraph unless folks are doing something dumb when they take out 4%. One should be withdrawing from the overweighted asset class and rebalancing on-the-fly. So if stocks are down, that means sell bond fund shares and spend them and/or buy equities. Conversley, if stocks are up, that means sell stock fund shares and spend them and/or buy bonds.

That's pretty much the opposite of what the quoted paragraph says. If folks have advisers such as Paul Grangaard, does that mean the advisers are telling them to do something that sane folks would probably not do? What's up with that?

I suppose that if one sells only their short-term assets while trying to ride out a market decline, that they are actually changing their asset allocation to the riskier more equities, less fixed income. That may be OK for some, but a standard rebalancing approach would not have you increasing your risk (as measured by your stock:bond ratio) in a market decline while still letting you hold onto to your equities.

 

[CyclingInvestor]

I am 53, retired 5 years, no pension etc.

My approach (not recommended for everyone) is 1 large bucket with 100% large well-managed (IMO) US based companies with long histories of increasing earnings and dividends and expectations (IMO) of more of the same, such as PG, JNJ, KO, ABT, SYY, ADP, etc, mostly in my IRAs.

They generate dividends sufficient to cover my 72t withdrawals (just over 3% this year), with a bit to spare so far (so I have been buying rather than selling stocks). Dividend income has increased just under 50% so far in almost 5 years, one reason I am comfortable with this method.

 

[Aeowyn]

I’m getting ready for a career change from full time “job” to a self-employed farmer. DH is also self-employed – his business is starting to pick up, but last year he had negative income. So as far as income goes, it is pretty much the same as being retired. I’m planning to rely heavily on investment income for the next few years.

I’ve been putting together a bucket strategy before I knew it was called “buckets”. I’ve now read a little bit about the bucket strategies and I’ve tweaked mine. I’ve got three main categories of buckets (1-short term, 2-medium term, and 3-long term) and a few sub buckets. Each bucket has it’s own target portfolio. The biggest disadvantage of my buckets is keeping track of all of them and the funds inside them. This is definitely not for everyone, but I enjoy this stuff and think its fun. I’m sure there will come a time when I will have to simplify.

My buckets are also more aggressive than typical. In my buckets I differentiate monthly expenses from draw. Since we may have other income either earned or pension, the draw is what we intend to need to draw from our investments to supplement other income.

Buckets

1a: 3-6 months draw – 100% Cash. This is money needed for cash flow.

1b: 3-6 months expenses – short term bond funds. This is an emergency fund.

1c: 2-4 years draw – this is almost 100% bonds: equal portions short term bond, general bond, world bond, and a conservative allocation fund. (Long term, I anticipate at least a 3% return from this portfolio, last 10 years it returned 6%).

2: 2-4 years draw – a mix that is about 50/50 bond and large cap stocks. This consists of a mix of general bond, foreign bond, balanced, and large cap funds. (Long term, I anticipate at least a 5% return from this portfolio, last 10 years it returned 7%).

3a: 3-6 years draw – 100% stock funds. Foreign stocks comprise 20-40%. Large cap ~55%, mid cap ~30%, small cap ~15%. (Long term, I anticipate at least a 7% return from this portfolio, last 10 years it returned 9%).

3b: the rest, target at least 6 years – 100% stock, very aggressive stock portfolio. Foreign stocks comprise 20-40%. Large Cap ~25%, Mid Cap ~25%, Small Cap ~50%. (Long term, I anticipate at least a 10% return from this portfolio, last 10 years it returned 11%).

My goal is to have the time rage specified for each bucket. But in a really long bad market, I’d be willing to completely empty my more conservative buckets.