Details of your buckets

[columbus]

31 years old, this is my list of assets...

20% cash
25% investment property equity
25% roth ira (90% stocks?)
10% 401k (90% stocks?)
10% vehicle value
10% misc

 

[TN_INVEST]

I am 53, retired 5 years, no pension etc.

My approach (not recommended for everyone) is 1 large bucket with 100% large well-managed (IMO) US based companies with long histories of increasing earnings and dividends and expectations (IMO) of more of the same, such as PG, JNJ, KO, ABT, SYY, ADP, etc, mostly in my IRAs.

They generate dividends sufficient to cover my 72t withdrawals (just over 3% this year), with a bit to spare so far (so I have been buying rather than selling stocks). Dividend income has increased just under 50% so far in almost 5 years, one reason I am comfortable with this method.

I think that is a nice way to go. I suspect some folks couldn't stand the volatility, but something tells me you will be rewarded (just don't panic the next time they drop 40% like they did back in 2008).

 

[CyclingInvestor]

I think that is a nice way to go. I suspect some folks couldn't stand the volatility, but something tells me you will be rewarded (just don't panic the next time they drop 40% like they did back in 2008).

Although I have only been retired 5 years, I have been 100% individual stocks since 1993, so I have seen a few bumps. I do not really care about market prices (except when I can beneficially 'trade up'), as long as earnings and dividends (as a group) keep growing.

 

[Avalon]

I use a variation of the bucket approach also. For reference- retired 2006-drawing SS- no debt. I also have income producing property that will net 6 months expenses on a good year.

B-1 MM, short term CD's, checking. - 5 years expenses

B-2 VG Total bond - 6 years expenses

B-3 Equity mutual funds- 12 years expenses

AA works out to roughly 53/27/20 stocks/bonds/cash

 

[obgyn65]

My thoughts exactly. My long term basic spending is covered by SS + pension. All the extra spending (i.e. trips, etc) is covered by cash, CDs, and muni bonds investments.

I think of buckets in terms of uses.

 

[youbet]

For you bucketeers........

It seems like deciding on dollar amounts to hold in each category (expressed in years of expenses) is easy at the beginning. But no one is commenting on how you will withdraw and/or replinish categories vs. equity and bond market performance or after emergency expenses, periods of high inflation, etc.

If you go for a decade or more without replinishing from the equity category due to market performance and the cash and bond categories decline to very low levels due to spending, are you OK with having your AA extemely heavy in equities as a geezer?

I manage my FIRE portfolio with an AA outlook (Current target = 50/45/5 at age 64). But if I were a Lucia devotee as some here seem to be, I'd focus on understanding how I would sell and replinish over time and through various market and inflationary scenarios. Determining starting values would be the easy part.

 

[Chuckanut]

I have read the Kiplinger article, [ http://finance.yahoo.com/focus-reti...agingwealth&cat=fidelity_2010_managing_wealth ] what's on this forum and taken a look at my own AA and what makes it up.

There are three buckets: short term 0-5 years, midterm 5-10 years, long term 10+ years. Cash and equivalents go into the short term buckets, short and intermediate bonds (maybe CD's) go into the mid term, stocks go into the long term bucket.

Right now I have the short term bucket filled and actually over-flowing. It probably goes out to 7 years before needing replenishment. The mid term bucket is lean. I estimate it would last about 4 years if it was not replenished. And the long term bucket also would last about 7 years, at today's market values.

But, in about 5 years SS kicks in for me. reducing what I have to withdraw from my personal savings. So, the mid term bucket would probably last a full seven years at that point.

The stocks portion of the porfolio goes into the long-term bucket, the bonds (intermediate and short term) fill the medium term bucket, and cash and short term bonds fill the short term bucket.

After doing all of this, I came to the same conclusion I did after using FireCalc: I will have an aproximately 50/50 mixture of stocks and bonds-cash. And the withdrawal rate starts at 4% and moves down to about 3.5% when SS kicks in.

As far as I can see the bucket system forces me to diversify my cash and bonds in such a way that so they will last me through a LONG stock market downturn. Thus, I won't have to sell stocks at a loss. It also forces me to take my stock profits and in effect rebalance the portfolio by moving stock profits to bonds and cash. However, if stocks do very poorly and bonds do quite well, I guess I could rebalance and move in the opposite direction - from the shorter term to the longer term buckets.

Do I have this right?

 

[ERD50]

For you bucketeers........
....

If you go for a decade or more without replinishing from the equity category due to market performance and the cash and bond categories decline to very low levels due to spending, are you OK with having your AA extemely heavy in equities as a geezer? ....

Buckets always struck me as a very convoluted way to get to an AA. Didn't Ray Lucia need to modify his strategy for the last downturn?

-ERD50

 

[mathjak107]

To my knowledge its still the same.

 

[teejayevans]

Buckets always struck me as a very convoluted way to get to an AA. Didn't Ray Lucia need to modify his strategy for the last downturn?
-ERD50

No, Ray's method been backtested by retiring at the start of depression, so change of strategy is not required. It uses a couple of key facts: balance funds have never lost money over a 7 year period and stocks have never lost money over a 15 year period. So...
7 years of cash like investments
8 years worth using balance funds
15 years or more...equities.
He's change it recently to now have 5 buckets, but that's just an excuse to push non-traded REITS and a new book.
Its NOT AA, it's simply matching your investments to your time horizon when you will need the money. AA doesn't do this
TJ

 

[mathjak107]

Buckets always struck me as a very convoluted way to get to an AA. Didn't Ray Lucia need to modify his strategy for the last downturn?

-ERD50

actually i found the reverse. how would you ever determine how many years cash and bonds to keep on hand ? it was basically the seat of your our pants. we selected a mix we were comfortable and we basically broke out how much in cash to hold by guessing.

if you guessed wrong you sold equities at a loss if we had a prolonged downturn.

the buckets simplify everything because the time frame for cash and bonds is based on periods of time where markets so far have never been down.


they are filled to allow you to go 15 years before worrying about selling your first equity position if need be.

rebalancing is not based on performance either. re-balancing is based on how many years of money you need to refill.

i find its just so neatly layed out and a pinch to see how your doing.

 

[Chuckanut]

So...
7 years of cash like investments
8 years worth using balance funds
15 years or more...equities.
TJ

Regarding the 8 years of balance funds--- does that refer to a balanced fund such as Vanguard Wellesly or Wellington? If not, what does it refuere to? Thanks.

 

[clifp]

No, Ray's method been backtested by retiring at the start of depression, so change of strategy is not required. It uses a couple of key facts: balance funds have never lost money over a 7 year period and stocks have never lost money over a 15 year period. So...
7 years of cash like investments
8 years worth using balance funds
15 years or more...equities.
He's change it recently to now have 5 buckets, but that's just an excuse to push non-traded REITS and a new book.
Its NOT AA, it's simply matching your investments to your time horizon when you will need the money. AA doesn't do this
TJ

Ok I am still struggling to figure how this system really work in reality.

Lets go back to 1999 (a rough decade for investing and the year I retired.)

You have 500K your long term bucket in total stock market VTSMX. The other 500K is split in what ever conforms with the system.
Would somebody walk through the process of withdrawing 40K a year indexing it for inflation (2.8%/year from 1999 to 2010).

I'll be happy to provide the historical performance information if somebody would describe the process. I am really curious to see how much money I would have if I followed Ray's strategy.

 

[ERD50]

Buckets always struck me as a very convoluted way to get to an AA. Didn't Ray Lucia need to modify his strategy for the last downturn?

-ERD50

No, ...
He's change it recently to now have 5 buckets ...
TJ

No he didn't change it, but yes he did?

actually i found the reverse. how would you ever determine how many years cash and bonds to keep on hand ?

....

i find its just so neatly layed out and a pinch to see how your doing.

Why do I need to? I I'm say 60/40, I have divs from the equities and divs/int from the fixed, and if needed I sell some to make up the delta and I can incorporate re-balancing into that.

I can look at my portfolio balance to see how I'm doing, and I want to do that anyhow. What can be simpler?

And if you an, please answer clifp's question. I'm also curious how this provides any tangible benefit.

-ERD50

 

[golfnut]

No he didn't change it, but yes he did?




Why do I need to? I I'm say 60/40, I have divs from the equities and divs/int from the fixed, and if needed I sell some to make up the delta and I can incorporate re-balancing into that.

s provides any tangible benefit.

-ERD50

Just curious, do you take cap gains from your equities as well?

Golfnut

 

[ERD50]

Just curious, do you take cap gains from your equities as well?

Golfnut

I comply with the tax code to the best of my ability.

What's that got to do with it? You'll take cap gains (if they exist) refilling a bucket, won't you?

-ERD50

 

[Aeowyn]

For you bucketeers........

It seems like deciding on dollar amounts to hold in each category (expressed in years of expenses) is easy at the beginning. But no one is commenting on how you will withdraw and/or replinish categories vs. equity and bond market performance or after emergency expenses, periods of high inflation, etc.

I have a minimum and maximum on each of my buckets. Money flows between my buckets in different ways.

Starting with my conservative buckets, if one of them falls below it's minimum amount it will pull money from the next bucket up until it is also at it's minimum amount. If I need to I'll keep going up each bucket level to fund my lower buckets. If I manage to have all my buckets at the minimum level, I'll start spending down my lower buckets completely.

Coming from a more positive angle, when my more aggressive buckets exceed their maximums, they spill over into the buckets beneath them. If all my buckets are maxed out, I have the choice to either stash the extra in my more aggressive bucket, increase my draw rate (this will increase the min and max on the buckets), put the money aside for a major purchase or an opportunity, or find a good cause to give the money to.

If you go for a decade or more without replinishing from the equity category due to market performance and the cash and bond categories decline to very low levels due to spending, are you OK with having your AA extemely heavy in equities as a geezer?

Actually I'd be comfortable with 100% equities. I don't particularly like bonds. I think of them more as insurance against a down market than I do as an investment. I guess I'm a bit more optimistic/comfortable with the market. I really don't think we'll have 10+ consecutive years of down market. I guess if we do, we'll have to tighten our budget.

Also how old do you have to be to obtain geezer status? 50? 80? 110? I have no idea how long I (or DH) will live. I always thought it strange that a standard bond allocation was tied to age since there is no way of knowing how long the money will need to last. That's why I like the bucket approach.

I manage my FIRE portfolio with an AA outlook (Current target = 50/45/5 at age 64). But if I were a Lucia devotee as some here seem to be, I'd focus on understanding how I would sell and replinish over time and through various market and inflationary scenarios. Determining starting values would be the easy part.

I'm not really a Lucia devotee. I was developing my buckets before I knew they were called buckets (had never heard of Lucia). After someone pointed out that I had buckets, I did read Lucia's Buckets of Money book. I agreed with some, disagreed with some - but mostly it made me think more about my bucket strategy and I did make some modifications.

 

[ERD50]

I wish FIRECALC had a "bucket withdraw" option. It would be interesting to see how it compared to B&H&ReBal.

-ERD50

 

[golfnut]

I comply with the tax code to the best of my ability.

What's that got to do with it? You'll take cap gains (if they exist) refilling a bucket, won't you?

-ERD50

Thanks for the response Just asking. Note I am not with IRS.

 

[youbet]

I always thought it strange that a standard bond allocation was tied to age since there is no way of knowing how long the money will need to last. That's why I like the bucket approach.

It sounds like you're saying that with the so-called "bucket system" you know how long you're going to live. Quite an unexpected benefit, if you call knowing your death date apriori a benefit.

In any case, it's clear your concept of a "bucket system" is quite fundamentally different from Lucia's and others posting about it on this thread. I guess that's what makes discussing it challenging. There doesn't seem to be a clear definition of what it is we're talking about.

 

[youbet]

I wish FIRECALC had a "bucket withdraw" option. It would be interesting to see how it compared to B&H&ReBal.

-ERD50

To do that, you'd have to define a "bucket withdraw" system. Lucia doesn't. He leaves[-] rebalancing[/-] bucket replinishing guidelines pretty much up to the individual and much flexibility in the amount to be in each bucket.

Our last thread on Lucia and buckets ended with the bucket devotees seeming to take the position that Lucia had built in safeguards for all eventualities. And bucket doubters seeing Ray's "system" as a clearly defined starting point that degrades into fuzziness due to lack of detail and clarity of actionable events over extended periods of time.

Lucia's system has been around for quite a while now. I wish someone who followed it in ernest would be willing to walk us through how it's gone the past several years.

 

[clifp]

Lucia's system has been around for quite a while now. I wish someone who followed it in ernest would be willing to walk us through how it's gone the past several years.

As ERD50 a bucket option would be nice for FIRECalc but even just an explanation of how it would have worked from 1999 to 2011 would be beneficial. E.g. from 1999-2002 I withdraw money from Bucket 1, and Falling interest rates caused spillage of $X dollars from Bucket 2 to Bucket one in 2005, higher stock market would cause Bucket 3 to refill the other buckets by $A and B$.

Dividing money into 3 buckets is easy, it is the flows from the buckets to the bills over time that is difficult to describe.

 

[mathjak107]

i find the best thing to do in the short term like this past decade is to just keep buckets 1 and 2 primed and full whenever markets are up.

we seem to be in this tight range and there is no telling when we may actually have a nice juicy bull run again.

you give up some gains in the long term but you will at least always have a full tank. its kind of always topping off your gas tank in case disaster strikes and you cant get gas but once that tank is empty your just as scewed.

there is no magic here folks as you all know. lets face it a really long down market and low rates will take its toll on future success just like any other system for withdrawing

while the truth is you dont have to worry about selling equities at a loss for as long as 15 years the reality is the stock bucket just may not grow enough to support the future refills very well.

more and more as i said thats why im researching the studies that show introducing some immeadiate annuities into the mix can really improve things.. im looking into other products too like longevity insurance.
i like to say un-conventional times may call for un-conventional investing and products to battle through it.

no one ever figured in their plan we would be living that 10% failure rate the last 12 years we always thought was the long shot in these calculators..

 

[rescueme]

i find the best thing to do in the short term like this past decade is to just keep buckets 1 and 2 primed and full whenever markets are up.

we seem to be in this tight range and there is no telling when we may actually have a nice juicy bull run again.

you give up some gains in the long term but you will at least always have a full tank. its kind of always topping off your gas tank in case disaster strikes and you cant get gas but once that tank is empty your just as scewed.

there is no magic here folks as you all know. lets face it a really long down market and low rates will take its toll on future success just like any other system for withdrawing

while the truth is you dont have to worry about selling equities at a loss for as long as 15 years the reality is the stock bucket just may not grow enough to support the future refills very well.

more and more as i said thats why im researching the studies that show introducing some immeadiate annuities into the mix can really improve things.. im looking into other products too like longevity insurance.
i like to say un-conventional times may call for un-conventional investing and products to battle through it.

no one ever figured in their plan we would be living that 10% failure rate the last 12 years we always thought was the long shot in these calculators..

Exactly. I agree with your comments since I've always said that in retirement, cash flow is everything.

Sure, you may not pursue "possibilities" since you've diverted some of your portfolio to cash/cash-like instruments (including an SPIA, which DW/me have) to maximize your possible gains. But that's the difference in the accumulation (when you're trying to "hit your number") and decumulation (when you're trying to protect/use "your number), along with ensuring cash flow for immediate retirement income needs.

 

[Aeowyn]

It sounds like you're saying that with the so-called "bucket system" you know how long you're going to live. Quite an unexpected benefit, if you call knowing your death date apriori a benefit.

The bucket system does't know how long you live, it just doesn't care how long you live. The buckets are the same no matter how old you are. If I reach the age of 100, I still want to plan for the contingency that I reach 150. I have no intention of trying to do that with 100% bond/cash.

With a bucket system, you have a separate risk tolerance portfolio for each bucket (e.g. emergency money, short term money, mid term money, and long term money). I don't intend to ever empty all my buckets (but if the doom and gloomers are right I have that option). My more aggressive buckets should spin off enough to keep my conservative buckets going and keep up with inflation. What remains in the buckets after I die is my legacy.