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Old 10-19-2020, 12:21 PM   #21
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Choosing to use 'buckets' is like choosing when to take social security. What works for one may not work for another, and there is no one right answer for all.



I'm retired six years now and have found no need for using 'buckets'
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Old 10-19-2020, 12:39 PM   #22
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Buckets are not required/needed.... It's what's in the buckets that matter.
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Old 10-19-2020, 12:45 PM   #23
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No they are not necessary. Just a tool that some find helpful. Like an insurance policy you probably won’t need. The bigger your stash and the more immune you are to worrying about having to sell at depressed prices the less useful the tool is.
+1. Like many things, there's no one right answer. Depends on your risk tolerance, your interest/ability in planning/managing your portfolio, your AA, how active/passive you are, etc.

Buckets is an approach some people believe in, and it works as advertised - but so do other approaches. I don't have any interest in buckets, but we all probably deliberately hold some more liquid assets, some decidedly not and others in between - so in a sense we all use the strategy loosely? If buckets speaks to you fine, if not, don't worry about it.
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Old 10-19-2020, 01:01 PM   #24
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First things first: There is no higher authority than you.
Can't wait to share that bit of news with DW.
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Old 10-19-2020, 03:57 PM   #25
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To me, buckets are created by using a diversified AA. If you have cash, bonds, fixed income, equities, etc., then you have 'buckets' that you can withdraw from based on returns, needs, and tax implications. The more buckets (accounts and investments) that you have, the more choices you have to manage your withdrawals and taxes, especially in down markets. I personally like having 3-5 years of 'cash equivalents' (money market, bonds, cash) that I can tap and ride out a several years downturn in the market. There is a cost to this, but there's a comfort, that will likely help me sleep at night and not do something stupid.
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Old 10-19-2020, 04:00 PM   #26
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The concept of buckets was important for my understanding time frames of holdings and expected variations in those time frames.. The old volatility vs yield thing smacks you right in the face repeatedly.

It was also important to realize the "experts" had left a lot of the details fuzzy.
cash +cds short.. stock long... and then you fudge...

An idea I always had problems with was when to cash out winning Stock holdings making net returns on investments to fund the stuff just treading water after a long drawdown. Should you have drawn cash in feb, march or this year then sold enough in sept to replenish those two months?
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Old 10-19-2020, 04:58 PM   #27
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Can't wait to share that bit of news with DW.
No, not you. He was replying to Cotton1929. Apparently there is no higher authority than Cotton1929.
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Old 10-19-2020, 05:01 PM   #28
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We don't use any real form of "buckets" strategy. We never have. We do have a proportionally small amount of cash in local and online banks. One is used to collect any income and to pay bills, The other is just because. It sort of just worked out that way. We could easily spend it down for discretionary purposes and not really make a dent.

I think it may be more worthwhile for those in the working world where some sort of safety is needed. For us, we have a fair amount of guaranteed income (SS) compared to our expenses that we don't need to take anywhere near a 4% WD rate from our investments. I know many are not in that situation.

When I was entering data into i-Orp, Fidelity's Retirement Planner and FireCalc, checking on our success rate, I don't recall ever being asked about any bucket strategy we wanted to use. Maybe I dis-remember about that.
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Old 10-19-2020, 05:05 PM   #29
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... Apparently there is no higher authority than Cotton1929.
... on the subject of whether buckets are necessary for Cotton1929. That credential is probably not much value in domestic disputes.
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Old 10-19-2020, 05:17 PM   #30
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... on the subject of whether buckets are necessary for Cotton1929. That credential is probably not much value in domestic disputes.
Just having a little fun.
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Old 10-20-2020, 05:44 AM   #31
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I understand the bucket system, but have been slow to adopt it.
It's not necessary. Buckets is an example of mental accounting for the most part.

The only exception I would make to that statement is if you are living solely off a taxable account (pre-59.5) and the taxable account is 100% equities. Then I would want about 3 years of expenses in something safe.
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Old 10-20-2020, 06:27 AM   #32
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+1 mental accounting. A number of years ago I considered buckets based on a Christine Benz article on the subject. After calculations, it broadly came back to the 60/40 AA that I was using at the time.

I figure it this way, if your WR is 4% and you keep 10 years of withdrawals in "safe" money that is 40% bonds and the other 60% ends up in equities... so six of one or a half-dozen of the other IMO.

Now within the bond allocation I can see a subset being a ladder of CDs or target maturity bond funds for liquidity sake if it make one sleep better at night.
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Old 10-20-2020, 09:41 AM   #33
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I may have muddied the water asking about buckets. My real question is how many years of living expenses do most of you keep in cash/MM/CD's (out of the market)? I currently keep one year and plan to draw from an after tax bond fund going forward. I don't have any other income (including SS). thanks
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Old 10-20-2020, 09:58 AM   #34
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Around 3 months to a years worth. Three years of Safe money is in a short term mixed Gov/Corp bond fund and FUAMX (intermediate treasuries). Another seven years safe money total market and corporate bond funds.
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Old 10-20-2020, 10:09 AM   #35
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I may have muddied the water asking about buckets. My real question is how many years of living expenses do most of you keep in cash/MM/CD's (out of the market)? I currently keep one year and plan to draw from an after tax bond fund going forward. I don't have any other income (including SS). thanks
For a number of years, I had a 60/35/5 AA rather than 60/40... the 5% was cash and the 5% cash, along with taxable account dividends and interest that I took in cash rather than reinvest, would be sufficient to fund 2-3 years of spending (net of pension income).

There's no right answer... some people are perfectly comfortable with negligible cash and others like 3-5 years of spending in cash... and there is a lot in-between.
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Old 10-20-2020, 10:21 AM   #36
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I may have muddied the water asking about buckets. My real question is how many years of living expenses do most of you keep in cash/MM/CD's (out of the market)? I currently keep one year and plan to draw from an after tax bond fund going forward. I don't have any other income (including SS). thanks
In the past I'd pretty much do what you do, though if the market wasn't down I didn't mind selling some stock funds too. Now, with the ACA subsidy as a target each year, I have enough cash to supplement the dividends I take from those equity funds to get me to 65. This way I don't have to take extra CG income by selling stock funds. So right now I have about 6 years worth, less dividends each year. Once I get closer to and then over 65 I'll figure how out how much I want to keep available.
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Old 10-20-2020, 11:01 AM   #37
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I have always thought that "buckets" just complicates my relatively simple (current) retirement plan. Most folks here seem to agree with me.
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Old 10-20-2020, 02:24 PM   #38
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I am new to this forum, so apologize if I am asking an obvious question. When people discuss their cash needs (e.g., setting aside a certain sum to fund 3-5 years of retirement), does that refer to cash over and above anticipated income streams such as dividends, rental income, social security, etc? Or is it a larger sum, including some or all of those anticipated sources of income?
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Old 10-20-2020, 03:34 PM   #39
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I think generally it would be the amount of cash needed from a portfolio that is needed over and above pensions, SS, etc. to support a desired lifestyle. Some may be conservative, though, and not count on 100% of less-certain sources like dividends and rental income. I think it is almost never adjusted for expected inflation, which is potentially a big uncertainty factor. When you are not sure, ask.

The other thing to know is that there is a "4%" "safe withdrawal rate" (SWR) number thrown around here a lot. It comes from an old study that said one could retire and draw 4% inflation-adjusted for 30 years without worrying about running out of money. I think people rarely remember the "30 year" part and the "inflation-adjusted" part but still talk about 4% SWRs. https://en.wikipedia.org/wiki/Trinity_study
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Old 10-20-2020, 03:50 PM   #40
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I think generally it would be the amount of cash needed from a portfolio that is needed over and above pensions, SS, etc. to support a desired lifestyle. ...
+1 Withdrawals would be spending needs less pensions less SS and any other regular income.

And if you have taxable account dividends and interest that you are taking in cash rather than reinvesting, those technically are withdrawals from the portfolio and included in the WR. So for example, if you need $100k to live on and have $60k from pensions and SS then your portfolio would need to provide the remaining $40k and in the first year that would be a 4% WR on a $1 million portfolio... but if you receive $10k a year in taxable account dividends and interest then your withdrawals from the portfolio from redemptions would only be $30k.
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