"Does Your Retirement Income 'Bucketing' Strategy Have A Leak?"

[serie1926]

Interesting article this morning on strategies and leveraging technology.

Does Your Retirement Income 'Bucketing' Strategy Have A Leak? - Seeking Alpha

 

[GrayHare]

Wow, that article is a wordy way to say, "Refill your buckets annually."

 

[mathjak107]

while the portfolio becomes more and more aggressive as you spend down the flip side is as time goes on the odds of you being down when you sell get less and less.

assuming you followed rays approach and didnt rebalance yet and this was 12 years later you would be about 90% equities.

but 12 years later with a flat market the odds are still pretty good you wont sell at a loss as the 15th year approaches.

never say never but so far we never had a 15 year period you couldnt have sold at a gain.

the gain may have been mid-year and didnt stick around but none the less you could have sold.

 

[mathjak107]

I dont fully agree either with their comparison to a target date fund. Target date funds may be doing exactly the wrong thing to retirees. Instead of basing allocations on whats going on around you they basing their allocation on age . that can be putting retirees at more risk. loading up retirees with bonds at the riskiest time for bonds in the last 30 years has to be a stupid concept. Just wait until all these retirees are in their first bond bear market and fall 10%. They will freak!

 

[W2R]

Makes me glad that my financial planning is based on asset allocation instead of buckets.

Buckets are supposed to be an easy surrogate for asset allocation, or so I have read, but to me buckets are just.... confusing. Not easy.

 

[mathjak107]

like everything else greed kills.

there are two ways to deal with bucket systems.

one way is to spend everything down first in buckets 1 and 2 and let stocks grow untouched with all dividends reinvested and having the the maximum amount left untouched reaping hopefully the biggest gains over longer times..

that can leave you with the most money but most risk .

the 2nd way is rebalance whenever markets are up. since your stock bucket will always be shedding money you wont get the biggest bang but you wont end up 90% equities before rebalancing.

 

[Meadbh]

like everything else greed kills.

there are two ways to deal with bucket systems.

one way is to spend everything down first in buckets 1 and 2 and let stocks grow untouched with all dividends reinvested and having the the maximum amount left untouched reaping hopefully the biggest gains over longer times..

that can leave you with the most money but most risk .

the 2nd way is rebalance whenever markets are up. since your stock bucket will always be shedding money you wont get the biggest bang but you wont end up 90% equities before rebalancing.

The latter point is made by the first person commenting, who writes more clearly than the author. Good link, thanks to the OP for posting.

 

[obgyn65]

I have never undertood this "bucket" approach anyway. I have a total annual budget and done.

 

[mathjak107]

the bucket approach in theory is nice.

instead of looking at a mush of money all lumped together you have it layed out right in front of you in nice clean clear cut buckets of years of spending money.

i do get a certain comfort level looking at things that way even if its only the emperors new clothes.

the other nice thing is instead of rebalancing based on market performance you rebalance based on years of money left.

letting dividends be reinvested and run for longer periods of time before spending them may offest the fact you carry many many years of cash at lower rates. your also letting your equity buckets run longer without spending them down typically.

its all a means to the same end but for some its a clearer path.

whether or not it has any built in advantages i dont think anyone knows.

the only bucket study i saw was just cash and equities so that wasnt comparing apples to apples.