Just returned from from Ray Lucia Show

[modhatter]

That's the author of "Buckets of Money" Good seminar. Low key, no pressures. Basically premise of show is "no one knows what stock market will do from year to year" and offering a means of better protecting your nest egg, no matter which way it goes.

He says he won over Ben Stein by showing him what would have happened to his own portfolio if he retired in 1966 I think it was (not sure on that date) by using his approach as opposed to traditional approach of a little from here a little from there.

Of course he didn't tell you his exact asset allocations in each bucket. Don't know if his book gets into that part. He was strong on keeping 20% in Reits, even now, as long as they were not heavily leveraged Reits.

Ordered his book the other day, but havn't got it yet. Of course their main aim of course is to get you as their client. Only reason I wanted to hear what they said, was because of Ben Stein's endorcement, who he says is obsessed and very concerned with the retirement issure today.

They seem like an astute bunch, as far as tax issues are concerned.

[mathjak107]

never heard of him but since you mentioned him i looked him up..he is doing a seminar near us may 6th so ill go...it says its free
my second favorite 4 letter word that starts with "F"
food is first

[obryanjf]

He does a great radio show. That is how I first got hooked on Ray. You can podcast it from
http://www.businesstalkradio.net/
He has some great strategies. I have not read the book, but would love to hear some comments.

job

[molly]

His name is spelled........RAY LUCIA and he has a website.....raylucia.com

At his website you can use his "bucket planner" if you register. His radio show is wonderful and has been a great source of information for me. I have learned a lot listening to him. I have also read his book, and I understand that he has another one in the works specifically aimed at folks five or so years away from retirement.

I also listen to his podcasts.

[Mysto]

I just listened to a podcast (4-11-06 #1) and Ray makes me very nervous. He told a guy that he could retire in about 6-7 years as he would have 600K saved and that would give him his desired $3000 mo. 6% withdrawal rate... Yikes!

I made a terrible mistake - at that rate I should have retired years ago.

[jazz4cash]

DW and I went to this event today in Philly. He had Ben Stein, the economist/actor as guest. It was pretty good. My spouse usually has low tolerance for such things, but she seemed to enjoy all FOUR hours. My take on the "buckets of money" strategy is it puts more focus on how your assets are drawn down, once they are allocated reasonably well. They also had a guy there promoting non-traded REITS.........more for me to ponder. Really good radio show, I guess check out the podcast format now since his daily show is on a very weak station in my area. BTW, I would be surprised if he suggested 6% withdrawal rate from the entire portfolio.....his website has some examples of how it works.

[modhatter]

I listen to his podcasts. I have never heard him suggest a 6% withdrawl except for situations that involve a few years left prior to social security kicking in or a pension for the caller. In those cases he has stated they could, as long as it was short term.

He does seem to be more of a gambler in his outlook than I would be.- In so far as taking on debt. He seems to streatch it to the max sometimes.
Also seems a little too accepting of lower retirement dollars needed than I would be. Other than that, I think he gives good advise in a general format.

[mathjak107]

I like listening to ray alot,interesting show.I do follow his buckets strategy and it works well.I find it really does take alot of the emotion out of the drops in the markets.There is alot of comfort in knowing i have 14 years before i need the money in the stock buckts.
* I found it works out at least for us to an overall* mix of 60/40 but the way the buckets divy it up has structure and a plan and i like that.Bucket one is our short term 1-7 year bucketwhich is cd's,short term bonds and money markets and is where all income will come from.Bucket 2 is bonds,bond funds ,unlisted reits with another 7 years worth and is used to replenish bucket 1 over time.The 7 year time frame includes all gains coming into that bucket so its not like you are putting 7 years of your own current money in it.Bucket 3 is where the fun is,this is long term money thats still invested as aggressively as when i was younger.i split it putting 1/3 in growth and income mixes and 2/3 growth mixes.The whole thing works out very well and is so simple to set up and execute.Its really nothing you dont do with a hoch poch of stuff all thrown together in a 60/40 mix but the buckets give you a good solid structure with well defined amounts and a plan for having a constant source of steady income for the rest of your life.

[jazz4cash]

mathjak

Thanks for the detail on how you are deploying the "buckets strategy". This helps me alot as I am nowhere near retirement and so far Ihave just focused on accumulation, thinking that I would worry about withdrawal when the time came.......now I can start working on a withdrawal strategy!

Question:

My near-term liability is my kids college expenses, so I am thinking of adding a making that bucket 1 and adding a 4th bucket for long term. Do you think that would work, or would I just stick to 3 buckets and refill bucket 1 when the time comes?

[mathjak107]

Exactly what we do.Im not retired so bucket 1 holds our future house money,money for 3 up coming weddings and my dental implants.
You can go to his website and play in the calulator and it will tell you how much in each bucket.We subtracted out the amount we wanted in bucket 1 and then entered the rest in the calculator.Being we arent retired it didnt give us another bucket 1 in the plan it jumped to 2 and 3.

[Rich_in_Tampa]

I'm gonna get that book.

I gather than bucket 1 is MMF, short-term bonds and other near-cash, and bucket 3 is diversified stocks, REITs, etc. So, what kinds of investments does Lucia feel are suitable for bucket 2?

[modhatter]

In bucket two go short to mid term bonds and Reits. He is a fan of Reits.
In bucket 3 are your growth stocks.

[mathjak107]

My bucket 2 has medium term treasuries,a unlisted reit apple hospitality suite,fidelity strategic income,fidelity new market income and fidelity income manager.

[ferco]

What are Lucia's projected rates of return for each bucket? Does he recommend rebalancing buckets 2 and 3 annually? Would the Vanguard or Fidelity Target funds work for buckets 1 and 2 or would he recommend something like Vanguard Wellington for bucket 2?

[astromeria]

When mathjak first mentioned Ray Lucia months ago, I examined my portfolio through that prism. What had seemed like a mish-mosh--and difficult to repair because 2/3 of it is in appreciated funds in taxable accounts--suddenly made some sense. I have approximately the recommended amounts (relative to my total stash) in bucket 1 (in my case, money market accounts and CD ladders), bucket 2 (IMC, bonds and conservative & moderate allocation funds like Oakmark Balanced, Dodge & Cox Balanced, Wellington, Permanent Portfolio--PRPFX), and bucket 3 (IMC coffeehouse-style index-fund stock port including REITs).

This method seems good for people who will get little or no pension (you sort of create your own in bucket 1) or are uneasy about the economy or their own investing skills. It helps me rest easier when the market is down--bucket 1 is unaffected, bucket 2 is only slightly affected, and I don't expect to live on the money in bucket 3 for many years.

IIRC after Ray depletes bucket 1, he turns bucket 2 into the new bucket 1, and doesn't re-bucketize bucket 3 until it's 14 years old (in theory, it has doubled in value twice--once every 7 years). But I think after I deplete bucket 1, I'll re-bucketize buckets 2 & 3 into 3 buckets, and repeat. Seems more prudent.

EDIT Bucket 1 is assumed to earn ~5% (hopefully covering inflation plus its taxes), bucket 2 is 6%, and bucket 3 historical market rate ~10%. But if bucket 3 is growing at a better rate, he suggests pulling some of the excess into bucket 2. Conversely, in a bear market he suggests pulling money from bucket 2 into bucket 3 to boost the growth to come.

[donheff]

Originally Posted by astromeria

IIRC after Ray depletes bucket 1, he turns bucket 2 into the new bucket 1, and doesn't re-bucketize bucket 3 until it's 14 years old (in theory, it has doubled in value twice--once every 7 years). But I think after I deplete bucket 1, I'll re-bucketize buckets 2 & 3 into 3 buckets, and repeat. Seems more prudent.

If things are going along smoothly (at expected averages) wouldn't you just rebalance yearly to keep the buckets aligned? For the theory to work, it would seem you would always want to keep bucket 1 full in good times so you could stop rebalancing and draw it down in bad times. The hope being that bad times would straighten out before your first two buckets got drained so you could start filling them back up.

[Rich_in_Tampa]

Originally Posted by donheff

If things are going along smoothly (at expected averages) wouldn't you just rebalance yearly to keep the buckets aligned? For the theory to work, it would seem you would always want to keep bucket 1 full in good times so you could stop rebalancing and draw it down in bad times. The hope being that bad times would straighten out before your first two buckets got drained so you could start filling them back up.

I think the idea is to keep things in their buckets as long as possible, e.g. don't touch bucket 2 for 7 years, nor bucket 3 for 14 years. The rebalancing is what we do intuitively, but his concept seems to be using the buckets to enforce discipline and long-term thinking.

I really gotta read that book...

[astromeria]

Originally Posted by donheff

If things are going along smoothly (at expected averages) wouldn't you just rebalance yearly to keep the buckets aligned?

That's too fiscally conservative even for me I might start gradually converting bucket 2 to bucket 1 at year 3 or 4 (buy 5-year treasuries or I-Bonds or CDs for the upcoming first year of the 2nd bucket 1)--but only if the rates are especially juicy. Guess I'd bide my time during the last few years of bucket 1 to try to hit the high spots--I wouldn't want to undermine the extra growth in bucket 2 to provide only a smidgeon of increased safety. I'd only do it at the right "price."

[mathjak107]

Yes when times are good and your up keep buckets 1 and 2 filled.
Your not to worried about getting maximum return and most growth in bucket 3,your more concerned with not getting poor and liquidating stocks when they are down..
You know eventually the laws of large numbers take over and you will eventually have 67% up years and 33% down years so the bucket rebalancing years almost take care of themselves.

[mathjak107]

Originally Posted by Rich_in_Tampa

I think the idea is to keep things in their buckets as long as possible, e.g. don't touch bucket 2 for 7 years, nor bucket 3 for 14 years. The rebalancing is what we do intuitively, but his concept seems to be using the buckets to enforce discipline and long-term thinking.

I really gotta read that book...

You dont want to wait until the buckets are empty for risk of selling into a downturn.