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Ray Lucia...Buckets of Money
Old 04-30-2005, 09:19 AM   #1
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Ray Lucia...Buckets of Money

Just wondering...Has anyone heard of the "buckets of money" retirement income distribution system outlined by Ray Lucia? He has a web site:www.raylucia.com; he has an interesting demo which illustrates the concept. Perhaps its too staright forward and simple compared to most of the formulas I've seen on the ER web site but I found it very interesting.

Any thoughts / critiques
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Re: Ray Lucia...Buckets of Money
Old 05-10-2006, 03:37 AM   #2
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Re: Ray Lucia...Buckets of Money

went to rays seminar on saturday..i thought it to be very entertaining,,,no pressure and actually his bucket system really does simplify life
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Re: Ray Lucia...Buckets of Money
Old 05-10-2006, 02:40 PM   #3
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Re: Ray Lucia...Buckets of Money

I've recently been listening to his radio show. You can download every day's show free, follow the links at raylucia.com. (No, I don't work with him and am not affiliated in any way).

He seems to be pretty straight and reasonable on his show. He advocates index funds and not using financial planners, life insurance, etc. I've not read his book, but may pick it up. My sense is that his buckets approach is nothing more than a simplified way of restating intelligent asset allocation. But if it simplifies the concepts and gets more people to do sensible allocation, then that's valuable.

I do wonder about all the seminars around the country. What is he selling? Is this just to promote the book, or are there other services he/his firm are trying to sell?
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Re: Ray Lucia...Buckets of Money
Old 05-10-2006, 06:13 PM   #4
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Re: Ray Lucia...Buckets of Money

the firm is a full service financial planning/management company......
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Re: Ray Lucia...Buckets of Money
Old 09-26-2006, 01:42 PM   #5
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Re: Ray Lucia...Buckets of Money

Because of this thread I borrowed "Buckets of Money" from the library.* In a way it is very basic in it's bucket concept, I have been doing that at the gut level for several years.* What I liked about it is how to extimate how much should be in cash equiv, intermediate, and long term growth "buckets".*

I don't agree with his proposition that one should invest in un-traded REITs (discussed earlier in the thread) - but his concepts are just fine.* Yesterday's his pre-recorded program wouldn't feed, but I have listened to several others and they are thoughtful.*

I have been looking at the tables he uses to estimate growth (there is one for short term, another for long term).* There must be a formula behind the numbers.* Does anyone know what they are??
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Re: Ray Lucia...Buckets of Money
Old 09-26-2006, 03:13 PM   #6
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Re: Ray Lucia...Buckets of Money

Quote:
I have been looking at the tables he uses to estimate growth (there is one for short term, another for long term).* There must be a formula behind the numbers.* Does anyone know what they are??
I read the book, too, and built a spreadsheet to calculate the "buckets".* The formulae are standard financial equations, e.g. net present value, etc.
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Re: Ray Lucia...Buckets of Money
Old 09-26-2006, 06:30 PM   #7
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Re: Ray Lucia...Buckets of Money

I like the structure of having the bucket system and it interfaces well with our investment objectives.
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Re: Ray Lucia...Buckets of Money
Old 09-26-2006, 06:57 PM   #8
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Re: Ray Lucia...Buckets of Money

The bucket system helps me stay sane when I'm tempted to buy or sell due to fear, greed, nerves, or irrational exuberance. Since I won't be tapping bucket 3 for years, I sweat less when it goes down, even for weeks.
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Re: Ray Lucia...Buckets of Money
Old 09-26-2006, 07:04 PM   #9
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Re: Ray Lucia...Buckets of Money

I can nail the inflation coeficient table: (1+inflation%)^years

I am aproximating the Expected rate of return coeficient. I think we aren't the same because NPV doesn't take into consideration the IRR of the investment.
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Re: Ray Lucia...Buckets of Money
Old 09-26-2006, 08:26 PM   #10
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Re: Ray Lucia...Buckets of Money

For the other factor, put this formula in your spreadsheet:

=1/((D10*(1+D10)^D8)/((1+D10)^D8-1))

Where cell D10 is the rate of return expected divided by 12.
Where cell D8 is the number of months.
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Re: Ray Lucia...Buckets of Money
Old 09-26-2006, 10:20 PM   #11
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Re: Ray Lucia...Buckets of Money

Quote:
Originally Posted by astromeria
The bucket system helps me stay sane
Yeah, but it's hard to find beer sold by the buckets now days. A six pack of long neck bottles usually gets me though a tough day in the market. But I guess draft beer brought home in a bucket would get the job done and be a real blast from the past.
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Re: Ray Lucia...Buckets of Money
Old 09-26-2006, 10:39 PM   #12
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Re: Ray Lucia...Buckets of Money

Quote:
Originally Posted by hogwild
For the other factor, put this formula in your spreadsheet:

=1/((D10*(1+D10)^D8)/((1+D10)^D8-1))

Where cell D10 is the rate of return expected divided by 12.
Where cell D8 is the number of months.
OK assume rate of return is 4% and we have 6 years.* Lucia's number is 63.9174

maybe I am pluggin in the variables incorrectly..

Yes, it works.. now to tweak it so it runs off yars and rate of return.

=1/(((I8/12)*(1+(I8/12))^(I7*12))/((1+(I8/12))^(I7*12)-1))

where I8= rate of return and I7 = years.

THANKS hogwild!!
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Re: Ray Lucia...Buckets of Money
Old 09-27-2006, 03:39 AM   #13
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Re: Ray Lucia...Buckets of Money

Quote:
Originally Posted by Brat
I can nail the inflation coeficient table: (1+inflation%)^years

I am aproximating the Expected rate of return coeficient.* I think we aren't the same because NPV doesn't take into consideration the IRR of the investment.
ooooooooooooh i love that talk,im getting goose bumps.
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Re: Ray Lucia...Buckets of Money
Old 09-27-2006, 03:58 AM   #14
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Re: Ray Lucia...Buckets of Money

The beauty of the whole thing is the structure it gives you. Its the same thing any retired person* that lives off their investments does on their own* by pulling a certain amount of money out each each year from a hodge podge of investments .

But with the bucket system the amounts drawn, the types of investments,the money held in reserve and protection from down markets are all very carefully derived at by rays formulas.
* Is it perfect?* nah* *But the simplicity and structure are way better than no plan and in my case way better then just pulling money out of a lump of 50/50 investments by the seat of my pants and a 4% withdrawl rule...
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Re: Ray Lucia...Buckets of Money
Old 09-27-2006, 09:53 AM   #15
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Re: Ray Lucia...Buckets of Money

IMHO nothing is perfect, but some approaches are more effective than others.* I do like the buckets concept.

I have been thinking a couple years out, after we sell the house.* I had been thinking about living off the proceeds (not drawing on our IRAs) because all the interest earned is taxable. That would really change how the IRAs are invested.*

Shortly after selling the house we enter the RMW stage and had planned to just move that $ to our Roths.* BUT our taxable income will increase substantially.* So, do I then invest some of the house proceeds in tax efficient mutual funds and use some of RMW for living expenses* Analysis, analysis....
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Re: Ray Lucia...Buckets of Money
Old 09-28-2006, 04:00 AM   #16
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Re: Ray Lucia...Buckets of Money

Depending how the minimum ira distributions look i intend to spend the ira money first. If nothing else the kids can inheirit the taxable accounts at a stepped up basis giving them a big tax advantage. I tried organizing my buckets as best as i could getting my mutual funds and stocks outside of the ira's where they can benefit from a zero to 15% capital gains tax . My bonds, bond funds and reits are in the retirement money .
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Re: Ray Lucia...Buckets of Money
Old 09-28-2006, 07:10 AM   #17
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Re: Ray Lucia...Buckets of Money

Quote:
Originally Posted by Brat
So, do I then invest some of the house proceeds in tax efficient mutual funds and use some of RMW for living expenses* Analysis, analysis....
Hmmm, maybe you should use some of the house proceeds for living expenses and invest some of RMW in tax efficient mutual funds?
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Re: Ray Lucia...Buckets of Money
Old 09-28-2006, 07:35 AM   #18
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Re: Ray Lucia...Buckets of Money

Finally got my copy of Lucia's book. I think his buckets are a very useful mindset for retirement.

Lucia sure seems to like annuities and sure seems to feel we all need personal financial advisors. This alone would make him suspect on this board, yet he is received in a surprisingly generous way around here!

I am playing around with some pretend models as to how I might implement 3 buckets and had some questions:

1. Wellesley seems like a great bucket 2 vehicle to me. Or is it too aggressive (40:60)?

2. I am confused as to how much play he advises in bucket 2. On the one hand, he suggest simplistically that you empty bucket 2 after you deplete bucket 1, total 14 years. Then he backs off and says, well you can tap bucket 2 to troll for some bargains after a downturn in stocks, but don't literally deplete bucket 2; or you can prune back bucket 3 in order to shore up bucket 2 during an upturn.

My intuition is that if you are a bucket-lover, you'd do well to just tweak bucket 2 here and there, but basically leave it intact - maybe allow yourself 1 years expenses worth of bargain hunting money play with, but otherwise keep it loaded at the 6-7 year level more or less.

3. His rationale for using a financial advisor is to present complicated tax situations, tracking of managers in active mutual funds, surveillance of rebalancing, etc. Yeah, yeah. Would you agree that this is bogus for most of us who get it, and primarily use index funds?
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Re: Ray Lucia...Buckets of Money
Old 09-28-2006, 08:08 AM   #19
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Re: Ray Lucia...Buckets of Money

I'm not the bucket expert that mathjak is, but I'm bucketizing too, so here's my take:

1--Yeah, Wellesley's fine for bucket 2.
He recommeds consevative allocation funds (among other possibilities), and that's what Wellesley is. Since I already had one cons alloc fund (PRPFX) and several mdoerate allocation funds (OAKBX, DODBX, VWELX, MACSX) and individual bonds, I'm using those for bucket 2. I'm gradually selling some oddball items that don't fit my current plan to fill up this bucket (e.g., mid-cap blend and value indexes, a managed small-cap fund).

2--Confusion about play in bucket 2.
I can see why you might be confused, but I thnk it's just using your judgment in when it's a good time to move $$ from bucket 2 to bucket 1--wait 7 years, or move a bunch when CD rates are reltively good (like now), or move gradually--it's up to you. Also when it makes sense to move $$ between buckets 2 and 3 (like near the bottom of a cycle one might want to pull from B2 into B3 to catch more upward draft, or after a very good year one might want to pull some out of B3 into B2 to nail down some profits...of course, one could guess wrong on the timing of these moves--you don't have to do it!).

3--Financial advisors.
Well, whatever floats your boat. Just coz he suggests it doesn't mean you have to use one. And remember that he's selling his services in this regard so may not be unbiased on the subject!


Due to my investing blunders history, I have:

-- Bucket 1 (CDs and MM accts) in taxable accts
-- Bucket 2 (hybrid funds and individual bonds) almost entirely in taxable accts
-- Bucket 3 (stock funds in a sort of slice & dice port and a few individual stocks) in IRAs and taxable

My slice & dice port is kind of messy. For example I have 5 large-cap-value investments (DVY, DODGX, and VWNFX in taxable accts, JKF and SDY in IRAs, and a little BAC--Bank of America--in DH's Roth). And 2++ large-cap-blend investments (VTI, VFINX, and a little ORCL in taxable, and what's left of FCNTX in an IRA...I've been selling off FCNTX over the past few months). [Note: Oracle bought out my startup this year and I still had a few thou in stock, so that's why I have it.]

I'm interested in mathjak's plan to live off the IRAs first (is that where you have buckets 1 and 2, MJ?). I'd like to see details of what MJ has in taxable vs IRAs vs Roths, and what's in each bucket. (Reminds me of the pillaging vikings commercials--what's in your wallet?!)

EDIT A few minor edits/corrections.
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Re: Ray Lucia...Buckets of Money
Old 09-28-2006, 08:19 AM   #20
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Re: Ray Lucia...Buckets of Money

Quote:
Originally Posted by astromeria
I'm not the bucket expert that mathjak is, but I'm bucketizing too, so here's my take:
Astro,

Thanks for taking on my questions. You have a way of seeing through the fog.

A few years ago. I had a hodgepodge of holdings -- each decent enough but all over the board (mostly because various employers over the years offered limited choices for my qualified money). An advisor ran a check on how much duplication I held and it was larger than I ever imagined. Same holdings popped up in blend funds, large and mid, small and mid, strategic funds, and even cash - used by the others as ballast. I was basically buying the same stocks 2 or even 3 times.

I think the buckets will tend to reduce that effect for me and the idea of having 7 years of cushion plus 6-7 years of somewhat protected holdings is reassuring as long as it doesn't skew too far on the conservative side. That's why Wellesley has some appeal for bucket 2 -- just enough value stocks to keep things interesting.

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