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).
I think of buckets in terms of uses.
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? ....
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...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.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
So...
7 years of cash like investments
8 years worth using balance funds
15 years or more...equities.
TJ
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
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
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.
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
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.
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
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 wish FIRECALC had a "bucket withdraw" option. It would be interesting to see how it compared to B&H&ReBal.
-ERD50
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.
Exactly. I agree with your comments since I've always said that in retirement, cash flow is everything.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..
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.