Rich In Tampa
Is there a reason for using Wellesley instead of Wellington for Bucket II?
Also, if one were actually in ER would a CD ladder work better than short term bonds for Bucket I?
Are you planning for a Bucket I duration of 4, 5, 6 or 7 years and what is your rationale?
Wellington is a fine choice, too. I went with Wellesley only because it is a little more conservative for my Bucket 2 mindset (at 35:65 versus 65:35). For B1 short term bonds are one of the options which even Lucia recommends; while there may be some gentle fluctuation of principle, in the Vgd STF Bond fund this is minimal and the incremental increase in returns makes it very comfortable for me.
A CD ladder would work well, though I prefer not having to futz around with it, add a rung every year, split among institutions to seal your FDIC coverage, mild loss of liquidity, etc.
I chose a 7 yr duration for B1 and B2 because it is conservative (a good thing for my temperament) and the arithmetic with a 4-4.5% SWR puts you about 50% in equities which is my target. Perhaps more importantly, if you buy in to the safety-means-time-in-the-market approach for each asset class, that puts you in very confident historic boundaries. That is, bonds are very safe if held for 6-7 years; stocks the same over 12-15 years, and cash shouldn't be subject to much fluctuation at all.
It's interesting how the same framework is good for naive conservative investors like me and also for the mathjaks of the world who prefer a more active or sophisticated investment style. It suggests to me that the basic tenets are sound.
That's how I look at the Bucket approach. I've contemplated this quite a while, and have a spreadsheet model using Present Value calculations for B1 and B2 balance allocation. This seems to meet my needs, but I'm always open to suggestions.