Ray Lucia...Buckets of Money

[Rich_by_the_Bay]

Quote:

Originally Posted by donheff When I first heard of the buckets approach it sounded sensible to me. But that is because I *assumed* I understood what Lucia meant without reading the book. Now I have seen that people who actually read the book are all over the place about what the strategy really is. To me that says, the book isn't clear enough for people to consistently devine Lucia's strategy. If you can't understand a strategy you should not be quick to adopt it. I will wait until I see a consensus among readers about what the strategy actually is before deciding if it makes sense.

That may be a premature conclusion, Don. I think it's more like one of those old ink-blot tests: you can take from it what you need. I must admit I am intrigued by it, having just now read the book. What you are assuming is lack of consensus may reflect that it's really more flexible than I realized.

The buckets define your needs; the contents of the bucket can be highly variable depending on your assets, expenses, etc. Just like the more traditional plans here. But what it does do is force a certain discipline on your planning, and help make explicit what might be less clear in a standard 60:40/slice and dice/4% SWR plan. In fact, you may be able to fit what you have now quite nicely into a bucket framework.

Overall, I do think it's one of the few books I really found useful. Give it a look.

[Brat]

Here's the link to the show archives:
http://www.businesstalkradio.net/wee...hives/rl.shtml

I like the archives because I can skip forward and pause. *

The book is almost 300 pages long. *My recommendation is to go to your public library, check it out and form your own opinion. *I did. *That what living below your means is all about.

[mathjak107]

well said rich

[mathjak107]

Yes the flexibilty is nice,you dont have to go out 7 years in your buckets either. If your more aggressive pick a different time frame, 15 years is the most conservative.

[youbet]

Quote:

Originally Posted by Brat My recommendation is to go to your public library, check it out and form your own opinion. *I did. *That what living below your means is all about.

OK OK....... I'm still a big doubter about this but I'll go to the library tomorrow and thumb through the book.

But tell me this.....do you wind up with a significantly larger cash position than you would otherwise? I'm currently 65/30/5 and I don't think I'd be comfortable with that 5% cash equvilant position being too much higher than that.

Have you looked at the opportunity cost of having a large cash position during a bull market? IE., you collect 5% - 6% on a large chunk of your portfolio while the equity market returns 7% - 8% over that same time period?

[oisif]

Something I'm not getting here

What's the buzz around buckets...It' s just portfolio diversification in my book...

[youbet]

oisif,

I suggest you do a search and read some of the past discussion on this as it's been an active topic for quite a while now.

It appears to be a methodology for structuring your portfolio and phasing the timing of withdrawals from asset classes to guard against liquidating equities during down markets but at the expense of carrying a high cash equivalent allocation. But, I need to go thrumb through the book.

[mathjak107]

Quote:

Originally Posted by youbet Have you looked at the opportunity cost of having a large cash position during a bull market?* IE., you collect 5% - 6% on a large chunk of your portfolio while the equity market returns 7% - 8% over that same time period?

Any good retirement plan is no longer about getting richer and maximizing returns for most of us. We shift gears to not growing poorer and getting the income stream we need.

Just like any other plan you are free to shorten the time frame between buckets and get more aggressive, another thing is a portion of bucket 3 is split between growth and income funds and growth.* Well you can also go all growth in bucket 3.*

As long as we meet the needs of the plan to generate our income perpetually the beauty of these plans is the game is over and we can finally relax.

In my case i was 50/50 before i organized in buckets and 50/50 after. If i dont count the cash in bucket 1* as a part of my portfolio as at this point im not retired and use bucket 1 for the cash for our retirement home and 3 up coming weddings than im about 60% stock and 40% everything else.

The flexibilty of the idea is very great, it merely is giving you the most conservative numbers to keep from selling in a down market yet maintaining the income stream you want.

Another benefit is i find my bucket 3 which is stocks is invested alot more aggressively than i might have normally done because i have the 15 year time frame in the back of my mind. I think i would be alot more into growth and income funds at this point if left to my own devices.

It also allows you to hand taylor the investments in each bucket to a particular time frame.

[mathjak107]

Now that i have the buckets to fill this is what i did.

Since i use fidelity exclusively i use 2 newsletters FIDELITY MONITOR & FIDELITY INSIGHT..

bucket 1 is cash and cd's

bucket 2 is fidelity monitors income and preservation model plus i added some treasury notes going out up to 7 years, fidelitty new market income , fidelity strategic income and lastly my un-listed reit

Bucket 3 i have a portion in fidelity monitors growth and income model* and the bulk in fidelity insights growth model plus i added a little gsg commodities fund.

[youbet]

Quote:

Originally Posted by mathjak107 bucket 1 is cash and cd's bucket 2 is fidelity monitors income and preservation model plus i added some treasury notes going out up to 7 years, fidelitty new market income , fidelity strategic income and lastly my un-listed reit Bucket 3 i have a portion in fidelity monitors growth and income model* and the bulk in fidelity insights growth model plus i added a little gsg commodities fund.

What percentage of your total portfolio to you have in each of the three buckets?

What consideration do you give to where qualified and non-qualified dollars go?

Are the CD's in bucket one laddered?

I understand that holding a large cash position could make you feel more comfortable with being agressive with your equity position.* I'm certainly not looking for that.* Considering I'm fully retired with no intention of ever working again and I'm in my late 50's, my portfolio would be considered by many to already be too aggressive.......*

[Mr._johngalt]

Quote:

Originally Posted by youbet Have you looked at the opportunity cost of having a large cash position during a bull market?* IE., you collect 5% - 6% on a large chunk of your portfolio while the equity market returns 7% - 8% over that same time period?

I know nothing about this book (other than what is posted here).
I am in a position where I get 5 -7% on a portfolio (if you can call
it that) which contains no equities. I am fully prepared to see the
equity markets return in double digits and to miss out. I also miss
out on any plunges, and just keep cashing those boring dividend
and interest checks. Not too unusual at my age I guess, but I took
this position right out of the (ER) gate and stuck with it.

JG

[Rich_by_the_Bay]

Quote:

But tell me this.....do you wind up with a significantly larger cash position than you would otherwise?.

Youbet,

Yes, probably, if you stick to the typical guidelines and examples he gives. Depends on the size of your nest egg: your cash position is defined not by a percentage, but by 5-7 years worth of expenses. So if you spend 50K per year, you might have 250-350K in cash and near-cash. With a 1mm nest egg, that's a high percentage. With a 10mm nest egg, it's lower.

With a desire to have no more than 5% in cash, it would be hard to stay true to the spirit of the Buckets plan, IMHO. Might be more compatible with a Clyatt-type withdrawal approach.

OTOH, you might find aspects of Buckets which you like and can adapt to whatever you feel comfortable with. It does seem to enforce discipline without being overbearing.

[mathjak107]

Quote:

Originally Posted by Mr._johngalt I know nothing about this book (other than what is posted here). I am in a position where I get 5 -7% on a portfolio (if you can call it that) which contains no equities.* I am fully prepared to see the equity markets return in double digits and to miss out.* I also miss out on any plunges, and just keep cashing those boring dividend and interest checks.* Not too unusual at my age I guess, but I took this position right out of the (ER) gate and stuck with it. JG mathjak107 As long as your return can grow with inflation you are fine as the 7% i need right now is based on 3% inflation. I dont know any way to continually do that without stock. Theres plenty of fixed income ways yielding that but very little chance of keeping up with inflation

[mathjak107]

Quote:

Originally Posted by youbet What percentage of your total portfolio to you have in each of the three buckets? What consideration do you give to where qualified and non-qualified dollars go? Are the CD's in bucket one laddered? I understand that holding a large cash position could make you feel more comfortable with being agressive with your equity position.* I'm certainly not looking for that.* Considering I'm fully retired with no intention of ever working again and I'm in my late 50's, my portfolio would be considered by many to already be too aggressive.......*

bucket 1 is laddered but i dont go longer than 1 year.

i make no difference between qualified and non qualified at this point as im not drawing income yet. . i did try to get most of my stock funds in the taxable portion and my bonds and interest bearing stuff in the ira's.

The large cash position is based on what the cash is for if your not ready to draw income.* In my case we will be using alot of it over the next 2 years or so.* If i wasnt i may have more in the other buckets, in fact if your not drawing income the calculator on line wont even figure a bucket1 it goes right to 2& 3.

[mathjak107]

Quote:

Originally Posted by astromeria Over a 14-year period, any terrible market should have recovered--it has in the past.

Even more interesting is that if you pull out random blocks of 14 year periods of time and look at the returns they all seem to migrate back to the same average annual returns .

I was hard pressed to find any period that didnt yield the same return on average,the law of large numbers definately holds true .

[youbet]

Quote:

Originally Posted by Rich_in_Tampa Youbet, Yes, probably, if you stick to the typical guidelines and examples he gives. Depends on the size of your nest egg: your cash position is defined not by a percentage, but by 5-7 years worth of expenses. So if you spend 50K per year, you might have 250-350K in cash and near-cash. With a 1mm nest egg, that's a high percentage. With a 10mm nest egg, it's lower.

Thanks Rich. Despite still not having gotten to the library to get the book, I think I'm starting to understand where Lucia is going. If you RE when your portfolio's SWR X portfolio value = desired retirement WR, then Lucia is going to have your cash allocation in the ballpark of 25% - 30%. The good news would be that you'll use that 25% cash positon as a steady source of income despite market conditions. The bad news is that your portfolio will probably not perform as well over time. I'll go into Firecalc and run some scenarios where my cash position is that high and see how it looks........

BTW, I understand your example where the WR is $50K and the portfolio is $10MM. Sure the cash allocation is low, but, of couse, that's only a 0.5% WR and not very realistic. Typically, folks would withdraw $50K from a $1.25MM portfolio (4%) and that would make 7 years of cash = to 28%. That is $350K/$1,250K. And, for me, that's a lot of cash unless I've decided I want a defensive allocation.

Quote:

OTOH, you might find aspects of Buckets which you like and can adapt to whatever you feel comfortable with. It does seem to enforce discipline without being overbearing.

Well, as I've said, I gotta go look at the book since otherwise I'm still only going by the info on his web site and the explanations I've read here. (I appreciate the explanations!) The methodologies I followed during the accumulation phase and those I now follow during the withdrawal phase are a hybrid developed over the years, definitely not the methodology of any one "guru." But there is always room for improvement through more reading, research, etc.

But, sheesh, why did he have to give his system such a goofy name? "Buckets of Money." Sounds like something you'd hear on a late night TV infomercial!

[Rich_by_the_Bay]

By the way, Lucia's bucket one essentially gets annuitized over 7 years, not just "SWR'd." Perfect place for CDs, MMFs or <ducking>a fixed annuity if rates justify</ducking>.

[REWahoo]

Quote:

Originally Posted by Rich_in_Tampa ...Perfect place for... <ducking>a fixed annuity if rates justify</ducking>.

Quote:

Originally Posted by Rich_in_Tampa Just more clutter.

Agreed.

[Brat]

I just returned from his conference. "Buckets of Money" is really designed for folks in or approaching retirement, not for the accumulation phase. It is a preservation of income approach because time is not on our side if the market tanks. He said that if you are in the accumulation phase Bucket 1 could be empty.

Bucket 1 is where you put very secure money to pay out for the number of years you are comfortable with during the draw down phase. Bucket 2 is the good-old reliable moderate growth & income bucket (low StD), Bucket 3 is for more volatile growth investments.

He provides formulas so that the retiree can determine how much they need in each area. While he has a total of 14 years for buckets 1 & 2 and weights them equally I found that my bucket 1 is small (4 years worth) but my bucket 2 (OAKBX AND DODBX) is 3 times the size he suggests. At the present time I am not driven to divest some of either for bucket 1.

I didn't take the 5:20 ferry, decided I would rather take the next one and be a little late. Breakfast was decent. He handled about an hour's worth of specific questions and did very well. One person has a tanked variable annuity (he indicated that he rarely recommends them), after expressing condolences he suggested a couple ways to rescue what value is left - depending on the contract terms. Ben Stein predicts significant increase in taxes because the current administration had driven the deficit so high – and he said he is a Republican. He bemoaned both corporate and government ethics. Event was worth my time. [When I put my parking receipt in the pay machine it gave me a get out of parking free message (Hilton charges $6) so I purchased a lotto ticket.]

[mathjak107]

Glad you enjoyed the presentation. Not having ever heard of ray my wife and i went just because it was something to do . We were blown away by the financial talent and showmanship of his group.

Now you understand why i stress the fact that a retirement and pre-retirement phase is structured different than the accumulation phase and thats what is a new concept to most people.

Going from the phase of "lets capture and maximize every last point we can of growth" to the "lets not grow poorer " phase is very important.

From the questions we always see come up about "but what if i dont have a large perecentage in stocks and the market goes up ill miss it"
you can see most people still try to carry that thought thru even in retirement and get caught getting poorer at times doing it.

Remember the market dropping drastically is a great buying opportunity in the accumulation phase.

The market dropping drastically in retirement or pre-retirement is financial sucide if you need to sell stock to draw income over a prolonged downturn