How did you adjust to making regular withdrawals and watching your balance decline?

[Rich_by_the_Bay]

Well, if Lucia is correct, the bucket terminology types will be doing fine.... totally confindent and assured of success. AA types will have been shown the error of their ways and will be standing in the soup lines staring blankly into space wondering why they didn't listen to Ray!

Actually, I was referring to most of us on the board, whether you consider yourself a bucketizer or not. I think we'll all do better than most who failed to implement the basics, whatever you choose to call it.

BTW, buckets and AA are not opposites - you choose your AA pretty much any way you please under Lucia's strategy. You set your stocks:bonds/cash by choosing your bucket 1 duration, and your equities are free to roam anywhere you want to take them in bucket 3. But that's a discussion which has already been done.

 

[megacorp-firee]

I must be missing something.

It looks like the 'bucketeers', of which I am one of, use bucket number 1 to hold x to y years of funds in the most conservative of investments, MM and CDs. It's a way to ALLOCATE expense dollars for your early years, which help get you through bad market times.
AAers (which I also subscribe to), who don't bucketize seem to be at the mercy of the market, unless they have a very conservative AA (i.e. a bunch of funds (that will last x to y years) in CDs and MMs (which sorta makes them closet bucketeers, tomato, tomaato). If you use bond funds or other like investments in you AA instead of CDs and MMs, then you COULD BE at risk during the down markets.

So the difference may be in your actual allocation.

 

[youbet]

So the difference may be in your actual allocation.

The difference for me is that I keep a number of years worth of spending in cash, near-cash, CD ladders and low volitility fixed investments. I'm not comfortable keeping this in a bucket, so I keep it in brokerage accounts and track it on a spreadsheet.

My beef with Lucia is not what he's doing. It's the fact he invented new jargon to be applied to already existing strategies. Just makes discussions more complicated.

Investor 1 - "With my current view of the market and because I'm going to RE, I'm increasing my cash/near -cash allocation."

Investor 2 - "Not me. But I am putting more money into bucket one."

To Ray's credit, his jargon does help some folks and could be useful. For example, DW has less than zero interest in our finances and her eyes roll when I tell her it's time for our quarterly review where I show her the spreadsheets (with pretty graphs) and review the "what to do if I croak" instruction sheets. Because of this, I keep most of our stash at Schwab where she would have access to a walk-in office, etc. and forego the opportunity of holding Vanguard Admiral Shares as a result. Given her lack of interest, I have been wondering if I shouldn't reorg the spreadsheet into a Lucia-like bucket format, give her a copy of Lucia's book and see if that helps. Absolutely nothing would change for us in our financial strategy, but the jargon might catch her interest and that would make me feel better.

 

[Rich_by_the_Bay]

Yeah, jargon can be confusing and Lucia is guilty. Especially when he starts in with bucket 2A and 2B, etc.

I think the real innovation he offers is the idea of "burning through" or self-annuitization of bucket 1. This "training technique" creates the maximum possible amount of time before touching your equities, reducing the temptation to either rebalance too often or sell too often on the stock or even bond side. This technique is more than jargon, and there is some analytic support from academics and modeling, FWIW.

You do not need to call it buckets to do that, but the "cash/bonds first" strategy is one I am convinced is beneficial for many even if, like Buckets, it leaves you heavily in stocks 12-15 years after decumulation begins. By then, there'll be social security (?), pensions if you are lucky enough to have one, and maybe a SPIA to soften the AA somewhat.

 

[youbet]

You do not need to call it buckets to do that, but the "cash/bonds first" strategy is one I am convinced is beneficial

I've read a couple of articles on that approach, neither one from Lucia, and find it interesting. You're right, no need for buckets terminology. I just wonder though, despite being fairly stoic about market volatility, could I stomach the variation involved in a high equity allocation that late in life? If I croaked at 74 leaving DW 80% in equities, could she handle that without using a planner (ugh) to reallocate to something more appropriate for her? Still, it's an interesing concept.

 

[73ss454]

So now I have to get buckets and annuities. You guys are confusing me.

 

[REWahoo]

So now I have to get buckets and annuities. You guys are confusing me.

Just get yourself a bucketful or two of annuities and you're covered...

 

[SteveR]

I got a kick out of this last sentence .

What's kind of hard to manage is all those unknown expenses. You can plan for them to some extent, but emotionally it still can be a little difficult to deal with especially in a down market. For us there were things like:

$16k, new roof
$5k, replace forced air ducting
$30k, son decided to really get serious about college so we gave him old car and are buying new one
$15k/yr -- college expense
$10k, replace house carpeting

I feel your pain.

In my first year of ER:
$30k remodeled basement kitchen and bathroom, main floor bathroom and laundry

$10k replaced all kitchen appliances

$12k DW's oral surgery

$12k college expense...son

$12k 529s...grandkids

We also bought and sold property, motorhomes and took a cruise.

We are hoping 2009 is a more normal year for us as 2008 will involve selling a house; buying a house; moving expenses and some remodeling expenses at the new house. Etc.

But, it is only money and you can't take it with you or buy the return of a deceased spouse or other relative or friend. This is not to say you blow it all on one big drunken lust-filled rampage or on things that have no value in your life. It means you have different priorities for your spening and a dimmer view of your future.

"Eat, drink and be happy...for tomorrow we die." or not.

Plan like you will live to be 100 but enjoy life like you will die tomorrow. The trick is to balance the two.....just in case you DO live to be 100.

 

[Lsbcal]

Steve, bravo!

 

[Rich_by_the_Bay]

IThis is not to say you blow it all on one big drunken lust-filled rampage

And the reason for that is what again?

 

[REWahoo]

And the reason for that is what again?

So you can save enough for a second drunken lust-filled rampage?

 

[Rich_by_the_Bay]

So you can save enough for a second drunken lust-filled rampage?

Which is exactly what buckets are designed to do. See, you get three altogether. Then you die.

 

[Nords]

Which is exactly what buckets are designed to do. See, you get three altogether. Then you die.

I'd like to join the rest of the board in realizing that quite a few of us are living on borrowed time...

 

[rogersteciak]

Damage Control in Difficult Markets

The May 16, 2008 PBS show Wealthrack.com discusses alternatives for protecting your capital in a market downturn during the first few years of retirement (these alternatives have already been discussed in several threads on this forum):
CONSUELO MACK | WEALTHTRACK