Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
I think I might be a bucket system guy...
Old 04-18-2020, 07:27 PM   #1
Recycles dryer sheets
 
Join Date: Oct 2015
Posts: 404
I think I might be a bucket system guy...

So, my plan was to launch at the end of last year, but I chose OMY as I determined I was not quite ready (psychologically) to cut the cord. For years, I have bought into the Total Return approach, but a I started running "what if" scenarios with our current crisis and am discovering the bucket system may be the right approach for me. I have been a 60/40 guy with some consideration drifting as low as 50/50 or 55/45 buying into the "won the game, why play" philosophy.
Doing a little reading, it appears even using a relatively conservative 3 bucket system approach I end up landing at a similar place with my AA as a Total Return investor, but the bucket system allows me to play Jedi mind tricks so I sleep well. Where I struggle some is what do you do if you have more than what you arguably need? Do you take the excess and throw it into bucket 3 which gives you a more aggressive AA? Or do you just follow a preset AA in tandem with your bucket structure? I can see an argument for both. For those who bucket, do you add more to bucket 3 if your cup runnith over or do you just ratchet down your SWR and run a shadow AA?
__________________

DawgMan is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

I think I might be a bucket system guy...
Old 04-18-2020, 07:40 PM   #2
Thinks s/he gets paid by the post
Markola's Avatar
 
Join Date: Nov 2013
Posts: 1,241
I think I might be a bucket system guy...

Iím 54 and DW is 57 and most of our stash is tied up in tax advantaged accounts we canít touch until 59.5. My j*b is getting iffy and DW is about to get laid off, so I have made the 403b and TSP accounts we can get our hands on using the Rule of 55 much more conservative than the rest of the stash. There is enough there to bridge till DW turns 59.5. Seems prudent.
__________________

Markola is offline   Reply With Quote
Old 04-18-2020, 08:26 PM   #3
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 25,712
To me it all sort of came back to the same thing. Let's say that your WR is 4%. Bucket 1 is 1-2 years of withdrawals so 4-8%. Bucket 2 is 8 years of withdrawals so that is 32%. Bucket 3 is the remaining 64-60%. Boil it all down and you're still ~60/40... just another way of getting there.

My understanding is that everything beyond about 10 years of withdrawals is in Bucket 3.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56...target 65/35/0 AA TBD
pb4uski is offline   Reply With Quote
Old 04-18-2020, 08:41 PM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 25,444
Since my retirement portfolio allocation is half fixed income (AA 50/50) I already feel like buckets 2 and 3 are covered even using total return approach. I just use normal rebalancing rules to move between them. So it’s rebalancing, not bucket rules.

And I withdraw annually for income which I suppose could be bucket 1. I also tend to keep at least 2 years worth of expenses in short-term funds in addition to the annual withdrawal. So that’s definitely like a bucket 1.

To me the AA approach could always be viewed from a bucket perspective though the replenishing rules are different.
__________________
Retired since summer 1999.
audreyh1 is online now   Reply With Quote
Old 04-18-2020, 08:50 PM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 25,444
Quote:
Originally Posted by DawgMan View Post
Where I struggle some is what do you do if you have more than what you arguably need? Do you take the excess and throw it into bucket 3 which gives you a more aggressive AA? Or do you just follow a preset AA in tandem with your bucket structure? I can see an argument for both. For those who bucket, do you add more to bucket 3 if your cup runnith over or do you just ratchet down your SWR and run a shadow AA?
This is a big question and it comes down to personal preference. A lot of people here seem to prefer reinvesting what they donít spend, which is effectively lowers their withdrawal rate. I do the opposite as I prefer to have the extra funds available now rather than reinvesting them for more (or less) later.

This is analogous to a wealthy investor deciding whether to invest aggressively or conservatively. If either way meets their goals then it comes down to personal preference.
__________________
Retired since summer 1999.
audreyh1 is online now   Reply With Quote
Old 04-18-2020, 09:13 PM   #6
Recycles dryer sheets
Linney's Avatar
 
Join Date: Nov 2006
Posts: 271
Quote:
Originally Posted by DawgMan View Post
Doing a little reading, it appears even using a relatively conservative 3 bucket system approach I end up landing at a similar place with my AA as a Total Return investor, but the bucket system allows me to play Jedi mind tricks so I sleep well. Where I struggle some is what do you do if you have more than what you arguably need?
I found the Retirement Manifesto's bucket strategy a useful tool to help me sleep at night. With all the recent market gyrations I worry about having enough cash and income-oriented investments to ride out the storm. It's hard not to keep selling more and more equities each time the market rises back up to create a larger and larger buffer of safety.

I created a spreadsheet modeled after the one in this article:

https://www.theretirementmanifesto.c...ment-paycheck/

except that I defined my bucket #1 as 2-3 years spending, bucket #2 as 7-8 years spending, and the rest (equities) goes into bucket #3. Just like you, the result was compatible with my total return AA.

In the end, I decided to continue to use my existing asset allocation spreadsheet to manage my investments and rebalance as needed. But when I have trouble sleeping at night after the markets plunge 7% in one day, I take a peek at the bucket spreadsheet and sleep a bit better.
Linney is offline   Reply With Quote
Old 04-18-2020, 09:39 PM   #7
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 25,444
I always know how many years of typical expenses I have in the fixed income portion of my retirement portfolio, and I take that into account when I rebalance. This was a strategy from day 1.
__________________
Retired since summer 1999.
audreyh1 is online now   Reply With Quote
Old 04-19-2020, 06:16 AM   #8
Recycles dryer sheets
 
Join Date: Oct 2015
Posts: 404
Quote:
Originally Posted by Linney View Post
I found the Retirement Manifesto's bucket strategy a useful tool to help me sleep at night. With all the recent market gyrations I worry about having enough cash and income-oriented investments to ride out the storm. It's hard not to keep selling more and more equities each time the market rises back up to create a larger and larger buffer of safety.

I created a spreadsheet modeled after the one in this article:

https://www.theretirementmanifesto.c...ment-paycheck/

except that I defined my bucket #1 as 2-3 years spending, bucket #2 as 7-8 years spending, and the rest (equities) goes into bucket #3. Just like you, the result was compatible with my total return AA.

In the end, I decided to continue to use my existing asset allocation spreadsheet to manage my investments and rebalance as needed. But when I have trouble sleeping at night after the markets plunge 7% in one day, I take a peek at the bucket spreadsheet and sleep a bit better.
Yep, reading his blog recently, particularly taking into account the current crisis, is what has me rethinking this slight change in strategy. As someone who will be 100% dependent on my investments (no pensions or other income sources), I think the bucket approach in RE will sit better with me. While in the pre-RE phase, I believe the feeling of having some control in accumulation/working has always made me more comfortable with the Total Return approach since all I was focused on was my level of comfort with volatility and no immediate plans to draw-down. In the end, while mind games, I think this little bit of change in thinking will give me the extra comfort I may want once I shut down the machine 100%.
DawgMan is offline   Reply With Quote
Old 04-19-2020, 06:21 AM   #9
Recycles dryer sheets
 
Join Date: Oct 2015
Posts: 404
Quote:
Originally Posted by audreyh1 View Post
This is a big question and it comes down to personal preference. A lot of people here seem to prefer reinvesting what they donít spend, which is effectively lowers their withdrawal rate. I do the opposite as I prefer to have the extra funds available now rather than reinvesting them for more (or less) later.

This is analogous to a wealthy investor deciding whether to invest aggressively or conservatively. If either way meets their goals then it comes down to personal preference.
Yep, this is the one little tweak between the Total Return and Bucket system. I suppose if you were a Bucket-purest, you would take your "excess" and put in bucket 3 which might push your equity AA portion higher than you think or would generally prefer. Is that the right decision... maybe, but as you said, personal preference. Again, we are back to the "won the game, why play" question.
DawgMan is offline   Reply With Quote
Old 04-19-2020, 06:39 AM   #10
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Midpack's Avatar
 
Join Date: Jan 2008
Location: NC
Posts: 15,492
Quote:
Originally Posted by audreyh1 View Post
I always know how many years of typical expenses I have in the fixed income portion of my retirement portfolio, and I take that into account when I rebalance. This was a strategy from day 1.
IIRC you also only review your WR (using new portfolio-years-spending) with an intent to adjust (up or down if needed) every 5 years - using 5 years for “smoothing” to avoid annual up or down adjustments. I always thought that was smart, and I’m doing the same, and I’ve given you credit for the idea right or wrong.
__________________
No one agrees with other people's opinions; they merely agree with their own opinions -- expressed by somebody else. Sydney Tremayne
Retired Jun 2011 at age 57

Target AA: 40% equity funds / 35% bond funds / 25% cash
Target WR: Approx 2.5% Approx 20% SI (secure income, SS only)
Midpack is offline   Reply With Quote
Old 04-19-2020, 06:59 AM   #11
Recycles dryer sheets
 
Join Date: Sep 2018
Location: Washington, DC
Posts: 456
Quote:
Originally Posted by DawgMan View Post
Yep, reading his blog recently, particularly taking into account the current crisis, is what has me rethinking this slight change in strategy. As someone who will be 100% dependent on my investments (no pensions or other income sources),
You won't have SS?
__________________
Hoping 2023 - 2024
Tiger8693 is offline   Reply With Quote
Old 04-19-2020, 07:08 AM   #12
Recycles dryer sheets
 
Join Date: Oct 2015
Posts: 404
Quote:
Originally Posted by Tiger8693 View Post
You won't have SS?
Hopefully, at least a portion of it, but not counting on it in my numbers. I'm 56, so not totally confident I will see 100% of what is projected by age 70 or whenever I elect to take it.
DawgMan is offline   Reply With Quote
Old 04-19-2020, 07:25 AM   #13
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 25,444
Quote:
Originally Posted by DawgMan View Post
Yep, this is the one little tweak between the Total Return and Bucket system. I suppose if you were a Bucket-purest, you would take your "excess" and put in bucket 3 which might push your equity AA portion higher than you think or would generally prefer. Is that the right decision... maybe, but as you said, personal preference. Again, we are back to the "won the game, why play" question.
Well that depends. See, if your retirement stash can safely provide more, what not take it instead of reinvesting it? What is not “purest” about that? Maybe it’s some bucket approach rule I don’t understand - maybe they simply deplete bucket 1 via spending and occasionally replenish from bucket 2.

But what about thinking about what you might could spend annually versus your assets? That’s where I prefer taking an SWR type approach which tells me how much I can spend if I want - i.e. how much my retirement stash can reasonably support in terms of annual withdrawals.
__________________
Retired since summer 1999.
audreyh1 is online now   Reply With Quote
Old 04-19-2020, 07:28 AM   #14
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 25,444
Quote:
Originally Posted by Midpack View Post
IIRC you also only review your WR (using new portfolio-years-spending) with an intent to adjust (up or down if needed) every 5 years - using 5 years for “smoothing” to avoid annual up or down adjustments. I always thought that was smart, and I’m doing the same, and I’ve given you credit for the idea right or wrong.
I don’t think that’s entirely me as I am perfectly fine with the annual ups and downs in my income. It’s my actual spending that doesn’t change much - grows more slowly.

Not that I don’t review and expect to gradually adjust WR as we age.
__________________
Retired since summer 1999.
audreyh1 is online now   Reply With Quote
Old 04-19-2020, 07:30 AM   #15
Recycles dryer sheets
 
Join Date: Jun 2014
Posts: 258
I use a bucket system, comprising of a core living fund (including travel), bridge ER fund, retirement fund, and an insurance/one in a life time experiences. For bucket 4, which I equate to the traditional bucket #3, I debated on whether to go 100% equities or 100% FI. Frankly I couldn't decide so I thought my normal AA seemed like a good compromise. I could be convinced otherwise.
Toocold is offline   Reply With Quote
Old 04-19-2020, 07:35 AM   #16
Recycles dryer sheets
 
Join Date: Mar 2015
Posts: 112
Quote:
Originally Posted by Linney View Post
I found the Retirement Manifesto's bucket strategy a useful tool to help me sleep at night. With all the recent market gyrations I worry about having enough cash and income-oriented investments to ride out the storm. It's hard not to keep selling more and more equities each time the market rises back up to create a larger and larger buffer of safety.



I created a spreadsheet modeled after the one in this article:



https://www.theretirementmanifesto.c...ment-paycheck/



except that I defined my bucket #1 as 2-3 years spending, bucket #2 as 7-8 years spending, and the rest (equities) goes into bucket #3. Just like you, the result was compatible with my total return AA.



In the end, I decided to continue to use my existing asset allocation spreadsheet to manage my investments and rebalance as needed. But when I have trouble sleeping at night after the markets plunge 7% in one day, I take a peek at the bucket spreadsheet and sleep a bit better.


Interesting, I use VYM as a stock not in bucket #2.
thepalmersinking is offline   Reply With Quote
Old 04-19-2020, 08:07 AM   #17
Recycles dryer sheets
 
Join Date: Oct 2015
Posts: 404
Quote:
Originally Posted by audreyh1 View Post
Well that depends. See, if your retirement stash can safely provide more, what not take it instead of reinvesting it? What is not ďpurestĒ about that? Maybe itís some bucket approach rule I donít understand - maybe they simply deplete bucket 1 via spending and occasionally replenish from bucket 2.

But what about thinking about what you might could spend annually versus your assets? Thatís where I prefer taking an SWR type approach which tells me how much I can spend if I want - i.e. how much my retirement stash can reasonably support in terms of annual withdrawals.
I suppose in simple terms, what I mean by "Bucket-purest" is if you buy into Bucket 3 as being "Long term Growth", effectively an equity mix, and you have your Buckets 1 & 2 replenished following your Bucket rules, then in theory, any excess funds go into Bucket 3 for long term growth.

At the same time, I get the desire to re-balance on top of this to meet a specific AA from time to time which is probably what i will do, despite the fact it may make my Bucket 2 that much more conservative.

Just a general observation in comparing the 2 approaches. I get both sides, but just suggesting, in theory, once you get comfortable with your total stash, income needs, and SWR, perhaps you could ignore the traditional annual re-balance to a set AA and find yourself being more aggressive than you thought you might be, yet completely at peace since your Buckets 1 & 2 are loaded per your plan. Food for thought.
DawgMan is offline   Reply With Quote
Old 04-19-2020, 08:40 AM   #18
Thinks s/he gets paid by the post
OldShooter's Avatar
 
Join Date: Mar 2017
Location: City
Posts: 4,612
Quote:
Originally Posted by audreyh1 View Post
I always know how many years of typical expenses I have in the fixed income portion of my retirement portfolio, and I take that into account when I rebalance. This was a strategy from day 1.
Yes. There are many art objects that can be viewed from different angles. Portfolios are one.

Looking at portfolio AA is one angle. Looking at the same portfolio's bucket sizes is another. Our approach right now (72YO) is to look at our fixed income as both part of an acceptable AA and as a bucket that if necessary can probably sustain us for the rest our our lives. We also view the whole situation as lucky, lucky, lucky!
OldShooter is offline   Reply With Quote
Old 04-19-2020, 09:02 AM   #19
Thinks s/he gets paid by the post
 
Join Date: Jun 2016
Posts: 3,740
Quote:
Originally Posted by OldShooter View Post
Yes. There are many art objects that can be viewed from different angles. Portfolios are one.

Looking at portfolio AA is one angle. Looking at the same portfolio's bucket sizes is another. Our approach right now (72YO) is to look at our fixed income as both part of an acceptable AA and as a bucket that if necessary can probably sustain us for the rest our our lives. We also view the whole situation as lucky, lucky, lucky!
I agree with this approach. I have my AA, but I overlay a bucket template on top to see what funds I have available for short term, bucket 1, which I have going out 5 years, income producing to refill bucket 1, going out 10 years and then bucket 3 is long term.

You can view your portfolio in multiple ways without being a slave to any one strategy. It just gives you different perspectives.
COcheesehead is offline   Reply With Quote
Old 04-19-2020, 09:13 AM   #20
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 25,444
Quote:
Originally Posted by DawgMan View Post
I suppose in simple terms, what I mean by "Bucket-purest" is if you buy into Bucket 3 as being "Long term Growth", effectively an equity mix, and you have your Buckets 1 & 2 replenished following your Bucket rules, then in theory, any excess funds go into Bucket 3 for long term growth.

Just a general observation in comparing the 2 approaches. I get both sides, but just suggesting, in theory, once you get comfortable with your total stash, income needs, and SWR, perhaps you could ignore the traditional annual re-balance to a set AA and find yourself being more aggressive than you thought you might be, yet completely at peace since your Buckets 1 & 2 are loaded per your plan. Food for thought.
I think you have to ask yourself long term growth for what? What ultimately is the goal for that money? Is it to pass on to heirs? Is it to have higher income when you are older?

Different investors have different goals.

If Bucket 1 and 2 are way large, you still want to know your goals for all that money. Some people will decide, OK, I’ll use more now. Some people will decide to try to pass more on to heirs, or to give more generously to charity.

Another food for thought - what really defines your income needs?
__________________

__________________
Retired since summer 1999.
audreyh1 is online now   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Bucket System Withdrawal Plan ?? rkser FIRE and Money 26 06-13-2019 06:44 AM
115-year comparison of bucket and non-bucket strategies camfused FIRE and Money 28 01-26-2019 10:00 PM
If you think you might start SS after FRA but before age 70 Independent FIRE and Money 8 09-06-2014 02:25 PM
I think this is a blockbuster issue you might also . newguy88 Health and Early Retirement 39 02-27-2008 01:17 PM
Think I'll Kick the Bucket (Bucket 2, that is) Rich_by_the_Bay FIRE and Money 11 10-22-2006 11:18 PM

» Quick Links

 
All times are GMT -6. The time now is 04:07 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2020, vBulletin Solutions, Inc.
×