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Re: Ray Lucia...Buckets of Money
Old 10-01-2006, 06:42 AM   #61
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Re: Ray Lucia...Buckets of Money

Does anyone know the rational for Lucia's use of 7 year intervals as opposed to say 5 years. Paul Grangaard in his book"The Grangaard Strategy" (chapter 12) uses a 10-year model.

I guess any interval combined with Bob Clyatt's suggestion of maintaining some part/part-time work would turn out just fine....it would certainly reduced the number of calculations and stress considerably and probably delay the onset of senile dementia from cerebral inactivity of doing nothing.
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Re: Ray Lucia...Buckets of Money
Old 10-01-2006, 07:04 AM   #62
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Re: Ray Lucia...Buckets of Money

The 14 years between buckets 1 and 2 leave a fairly safe assumption that if you even waited until buckets 1 and 2 were empty, back testing 14 year time frames seems to always equal the average annual gains that you need to make the income stream work .

Pulling any 14 year periods randomely always averaged out to the average return for that asset allocation. You could shorten up buckets 1 and 2 but you may differ slightly in your average annual returns ,using 10 year periods still had to much variance to say for sure that you will almost always achieve a certain amount of average gains by that time frame.

. Those laws of large numbers are hard to make come out any different with longer periods of time.
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Re: Ray Lucia...Buckets of Money
Old 10-02-2006, 03:00 PM   #63
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Re: Ray Lucia...Buckets of Money

Today's Ray Lucia radio show (second hour) has a pretty good explanation of how the buckets are replenished over time. A caller asked a question about when bucket 2 gets replenished. You can listen to the 10/2/06 hour #2 archive at this site:
http://www.businesstalkradio.net/wee...hives/rl.shtml

You can skip thru the seemingly endless commercials.
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Re: Ray Lucia...Buckets of Money
Old 10-02-2006, 03:56 PM   #64
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Re: Ray Lucia...Buckets of Money

Quote:
Originally Posted by hogwild
Today's Ray Lucia radio show (second hour) has a pretty good explanation of how the buckets are replenished over time.
Actually, it is still a very vague explanation. He clearly says that you never let bucket 2 get empty because you don't want to be in a position of having to tap into bucket 3 in a bad market. He even adds a bucket 3a of REITS for "lazy bucketeers" to get several more years of relatively safe money to avoid touching bucket 3 in a bad market. The term "lazy buckteers" implies that alert bucketeers are actively pouring.

Sooo - the clear implication is that your pour funds down into bucket 2 from 3 (and presumably from 2 to 1). But he doesn't give any examples of when and how you would best do it (e.g. how high do you want the equity return to be in order to warrant adding how much to bucket 2, etc.) A discusion of just that methodology would be very helpful.

Ray did give a great example of a guy retiring with a $1M portfolio in 1966 (bad, bad timing) with $50K expenses inflated 3%/year. With a standard 60/40 portfolio he went balls up in 2003. Same portfolio but drew from the bond portion first (e.g. pull from a simple bond bucket during the bad years) he ended up with $1M+. Fully bucketized and the guy ended up with $4M+
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Re: Ray Lucia...Buckets of Money
Old 10-02-2006, 06:12 PM   #65
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Re: Ray Lucia...Buckets of Money

MY plan is to channel some money into buckets 1 and 2 every year the markets up
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Re: Ray Lucia...Buckets of Money
Old 10-02-2006, 06:38 PM   #66
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Re: Ray Lucia...Buckets of Money

It's true that on the one hand, he gushes about how the money in bucket 3 remains untouched for 14 years and is almost guaranteed to be up (probably way up); then on the other hand, he cautions you to never let bucket 2 go dry, implying that you have to cherry-pick bucket 3 to do that. Obviously, bucket 3 does not truly remain untouched in this strategy.

My take is to truly let bucket 1 almost deplete. If the market has done well, I'll fill it from B2 and prune B3 a bit to give B2 a drink. If the market is bleak, I'll sit tight a bit longer, using B2 to buy me a few years more in B1 (to live off of). Somewhere in that 10-14 year period, at least some part of the B3 allocation will be up nicely, and can be used to replenish B2.

I think you have to rebalance among the buckets here and there, but you don't want to be hasty about it. The closer you can get to 14 years between bucket re-allocation, the better; you just don't want to be forced to do so in a strongly down market, so
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Re: Ray Lucia...Buckets of Money
Old 10-02-2006, 06:43 PM   #67
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Re: Ray Lucia...Buckets of Money

I dont think it matters either way. If you wait until empty the laws of large numbers almost , repeat almost always will give you about a 7% return with his breakdown. By doing it every up year you may take some potential growth money out of bucket 3 but by the same token you may sell higher at some of the sales by catching a market peak then by waiting until the end.
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Re: Ray Lucia...Buckets of Money
Old 10-02-2006, 07:43 PM   #68
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Re: Ray Lucia...Buckets of Money

Quote:
Originally Posted by mathjak107
MY plan is to channel some money into buckets 1 and 2 every year the markets up
Yeah, that is how I viewed it. I think I would do that and keep buckets 1 and 2 full as long as consecutive good years continue. Once a downturn starts, however, I am not sure that I would start pulling from 3 on the first good year. After reading all these posts I am thinking if we could get Ray to articulate his method better he might say something like "channel some money into 2 any time 3 is up sufficiently to make the historical (from the point you bucketized) bucket 3 average annual ROI better than the 'safe' rates in bucket 2." At the same time pour any excess generated in 2 into 1. From that point on start again as at the beginning. Still not sure how quickly and deeply to start pouring once the recovery gets to the point I described.

Ray needs to provide some examples to optimize the strategy. But I am liking his buckets again.
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Re: Ray Lucia...Buckets of Money
Old 10-02-2006, 07:51 PM   #69
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Re: Ray Lucia...Buckets of Money

Another approach could be to rebalance B3 by sweeping the gains on the winning asset allocations directly into B2 when the whole market is up, while rebalancing internally within B3 when it is down or lagging. Still feel better leaving B3 to itself. Maybe apply the rebalancing strategy only after B1 is gone.

One of you who gets Ray's radio show live should call in on this: they love bucket questions.
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Re: Ray Lucia...Buckets of Money
Old 10-02-2006, 08:14 PM   #70
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Re: Ray Lucia...Buckets of Money

for what is presented as a simple approach ... there sure seems to be a lot of confusion on how it is supposed to work! nonetheless, ray's getting a lot of ink on this forum.
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Re: Ray Lucia...Buckets of Money
Old 10-02-2006, 08:23 PM   #71
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Re: Ray Lucia...Buckets of Money

Quote:
for what is presented as a simple approach ... there sure seems to be a lot of confusion on how it is supposed to work! nonetheless, ray's getting a lot of ink on this forum
That's what I was thinking. Reminds me of that Elliot wave thing. It's so simply everybody has their own way of interpreting it.

I still don't see the diff between 3 buckets and 2 buckets.ie 50% money markets (or CDs, or short term bonds) and 50% reasonably placed equities

No difference except maybe the 3 buckets is apparently hard to understand and the old 2 bucket way is easy.
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Re: Ray Lucia...Buckets of Money
Old 10-02-2006, 08:50 PM   #72
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Re: Ray Lucia...Buckets of Money

I see it as much simpler. 1 is the CD, quality bond type part of your investments, 2 would be the equity-income type (such as a balanced fund) - funds that Forbes gives an B+ or better in down markets, 3 is where you put growth stuff with a high StD.

Right now my bucket 1 is low and 2 very heavy. Bucket 1 will be filled in the next year or two. If my returns in 2 start dropping (which would likely happen in a down market) I will bring 2 down by filling 1, then 3.
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Re: Ray Lucia...Buckets of Money
Old 10-02-2006, 10:07 PM   #73
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Re: Ray Lucia...Buckets of Money

Five pages of discussion and it still is not clear to me.

Lets go with the 1M portfolio with a starting withdrawal rate of 4% equating to $40,000 per year. Using 3 buckets with bucket 1 and 2 each containing 7 years expenses, how would each the following buckets be invested in terms of allocations:

Bucket #1: $280,000
Bucket#2: $280,000
Bucket #3: $440,000

It is also not clear to me whether the intial fill of buckets 1 and 2 should be calculated with pre-inflation dollars as above or should the 7 years expenses in each bucket be adjusted for inflation, meaning the starting deposits will be much higher then the above. I am thinking that if bucket 1 is cash and bucket 2 is low risk investments then buckets 1 & 2 are not going to keep pace with inflation and thus the initial deposit of 7 years expenses in each will need to be adjusted for inflation otherwise the funds will not last 14 years.

If it is simple, make it simpler for this simple guy.

Thanks
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Re: Ray Lucia...Buckets of Money
Old 10-02-2006, 10:42 PM   #74
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Re: Ray Lucia...Buckets of Money

Quote:
Originally Posted by ferco
I guess any interval combined with Bob Clyatt's suggestion of maintaining some part/part-time work would turn out just fine.....
Practically any semi-sane approach would be made much more secure by the ability to earn current wages at reasonable hourly rates.

If your bucket's got a hole in it, best refill from some source other than another bucket which may also have a hole in it.

Face it- workers have to survive if the economy is to survive. On the other hand, retirees of any age are redundant.

Ha
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Re: Ray Lucia...Buckets of Money
Old 10-03-2006, 01:26 AM   #75
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Re: Ray Lucia...Buckets of Money


It seems to me that the fundamental premise of buckets is that
instead of spending down your portfolio proportionally to its allocation
(which is what happens if you rebalance every year), you'll do much better
by spending the more conservative parts of your portfolio first, and then
gradually dribbling money from riskier to more conservative investments
(in other words, selling equities in Bucket 3 in order to replenish 2 and 1).

If you rebalance periodically (at least annually), then you are more or
less doing this selling mindlessly. The idea of buckets is, instead, to do it
opportunistically. But, isn't this just another name for "market timing" ?
Maybe so, maybe not. If the decision is made emotionally, then yes.
But sensible rules could be imagined, e.g. always sell from 3 when its
annualized performance (since the beginning) is equal to the long-horizon
gain you'd assumed from the get-go. Lucia seems to be side-stepping this
issue of exacly what these rules are. Maybe it's in the book ...

What would be REALLY cool would be if FIRECalc had an option (in the
"How Is It Invested ?" tab) that allows for a bucketized system. The main
difference, of course, is that instead of rebalancing every year (as FIRECalc
does), the movement of money would occur opportunistically according
to such rules. If bucketing works (and I've become pretty convinced it's
a good idea while writing this) , then FIRECalc should show better SWRs !




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Re: Ray Lucia...Buckets of Money
Old 10-03-2006, 02:58 AM   #76
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Re: Ray Lucia...Buckets of Money

The buckets are set up by time. Since bucket 2 is a 7 year buck heres what i have in mine
1-7 year treasury notes laddered

fidelity new market income

fidelity floating rate loans

fidelity strategic income

fidelity ultra short bond fund

fidelity strategic real return

apple hospitality un-listed reit paying 8.30% and gets sold in 6-7 years.

fidelity income manager

thats bucket 2 in all its splendor
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Re: Ray Lucia...Buckets of Money
Old 10-03-2006, 03:11 AM   #77
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Re: Ray Lucia...Buckets of Money

No john , no market timing here. Only a rule that says dont sell stock into a down market and a method for preventing it. How you refill is up to you, its not critical as long as bucket 2 always has 3-5 years in it min.

Dont forget its not that your trying to time the market to maximize your gains, you only want to siphon a little out of bucket 3 every time your up 2 years in a row but again you dont have to. The security is in knowing that we never ever had a 14 year period where a diversified portfolio was down . Even 1966-81 stocks sucked but with dividends they still were slightly positive, real estate and reits took off like crazy, gold and commodities soared.

That means that even if you wait and empty bucket 1 and 2 ,14 years later even in our worst sell offs you should still be up enough to sell from bucket 3 without really hurting your income flow.

As a precauaution against a total market melt down if you did wait the full 14 years to refill he reccomends always having about 3-5 years in bucket 2 from gradual replenishments over the years to carry you thru a little bit so you can sell into hopefully a stronger market.

Nothing is 100% as there is always "THIS TIME ITS DIFFERENT" but its as close to a solid working plan with all the mechanics for generating a good income stream as i have seen yet.

Most planning leaves the mechanics of getting that income stream from your investments out.
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Re: Ray Lucia...Buckets of Money
Old 10-03-2006, 07:20 AM   #78
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Re: Ray Lucia...Buckets of Money

Quote:
Originally Posted by JohnEyles

If you rebalance periodically (at least annually), then you are more or
less doing this selling mindlessly. The idea of buckets is, instead, to do it
opportunistically.
I think this is essentially correct. Ray would advise that the "bucket" concept is easier to properly grasp that good alllocation practices. Drawing expenses from bucket 1 keeps you pulling from the corect asets for year to year expenses. I guess it is a withdrawal selection strategy as much as an asset allocation strategy.

Quote:
Originally Posted by hydroman
Lets go with the 1M portfolio with a starting withdrawal rate of 4% equating to $40,000 per year. Using 3 buckets with bucket 1 and 2 each containing 7 years expenses, how would each the following buckets be invested in terms of allocations:

Bucket #1: $280,000
Bucket#2: $280,000
Bucket #3: $440,000
I viewed the amounts like you show here until Ray described his example of a guy with $1.1M. Buckets 1 and 2 were substantially less (I can't remember the exact amounts). Remember: you don't need a full 7 x yearly expenses because the bucket will be appreciating at a fixed or relatively safe rate.
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Re: Ray Lucia...Buckets of Money
Old 10-03-2006, 08:07 AM   #79
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Re: Ray Lucia...Buckets of Money

Quote:
Originally Posted by mathjak107
No john , no market timing here. Only a rule that says dont sell stock into a down market and a method for preventing it. How you refill is up to you, its not critical as long as bucket 2 always has 3-5 years in it min.
I'm beginning to like this system! If I've spent most of bucket one and two and need to refill, I don't have to sell stock from bucket three to refill, but rather it's "up to you, it's not critical as long as bucket 2 always has 3-5 years in it." Now that I understand that buckets one and two can be replinished, in Ray's system, without selling from bucket three, I'm starting to see the difference between this and other withdrawal systems that use a cash-first approach. There is some unspecified source of funds for replenishment that doesn't involve working or selling equities. That's nice. Will volume two of his book specify what that source of funds is? Lottery winnings? Inheritance?
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Re: Ray Lucia...Buckets of Money
Old 10-03-2006, 08:14 AM   #80
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Re: Ray Lucia...Buckets of Money

Quote:
Lets go with the 1M portfolio with a starting withdrawal rate of 4% equating to $40,000 per year. Using 3 buckets with bucket 1 and 2 each containing 7 years expenses, how would each the following buckets be invested in terms of allocations:

Bucket #1: $280,000
Bucket#2: $280,000
Bucket #3: $440,000
The amounts you would put in each bucket is determined by a formula (or can use the table provided in the book). I put the Excel type formula in a previous post. For an example using the $40,000 initial expense and using 7 year buckets and initial portfolio of $1MM:

bucket #1 $243,864
bucket #2 $199,466
bucket #3 $556,670

This will also vary on the inflation and return assumptions you make. In this example I used 3% inflation, 4% return for bucket #1 and 6% return for bucket #2.
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