Who follows a "buckets strategy" in retirement?

[Winemaker]

I keep anywhere from $200 -$300k in cash in my employer's Stable value plan or CDs in tIRA's, just in case of a market meltdown. The rest is 40/60 fixed income/stocks. Come October, Ill have been retired 10 years, DW 9 years June 2025. We haven't gone to bed hungry yet, the freezers, pantry, wine cellar, basement pantry are full. We have three trips planned already for the year, and will most likely take more, No Viking though, they had their chance and blew it.

 

[GravitySucks]

I sort of started out with a bucket approach.

It’s a matter of perspective. I have up to 6 months of cash then there’s bonds maturing every six months or so. So I have a 3 year bond 2 year bond and 8 year bond coming due this year. Count it as a cash like bucket? Doesn’t really matter.

I pay closer attention to liability matching and rebalancing via bond laddering and a couple bond funds to balance against the equities.

 

[Bigdawg]

To me bucketing just another market timing scheme. How do you decide when to fill the empty bucket? Unless a robot is doing it with set rules, it is just timing.

I'm assuming you just rebalance your AA then? When do you do that? I'm guessing on a day. Which is during a week. Which is during a month. Which you accomplish yearly? How do you choose which day?

Market timing!

 

[HI Bill]

I'm not into the bucket strategy. I keep 2-3 years of cash in a money market or equivalent. More important than 'buckets' are maintaining a reasonable AA, and taking withdrawals based on present and future tax consequences. At age 58, I'm taking ~25% of my annual income needs from a 401(k) under the "Rule of 55" and an inherited IRA, then maxing out the 0% LTCGs tax bracket by taking distributions from taxable brokerage accounts. This strategy will hopefully last about 4-5 years, at which time I'll be stuck spending $ from tax-deferred accounts at higher tax brackets, and eventually, SS. This results in greater spending ability when we're younger, and more taxes and less spending when we're older. SS starting at 70 will be mostly used to pay for taxes on RMDs!

 

[rkser]

i have the 3 fund (sort of buckets) portfolio -

Taxable (Largest bucket)- VTI + VXUS (+ FZDXX for emergencies)

Tax Deferred - BND + some CDs

Tax Free - VTI (+ small part of VGT)

Major part of Living Expenses in retirement are coming from the dividends from the Taxable & then I sell the VTI for the remaining.

All our Bonds are in Tax Deferred, which I presently use only for Roth Conversions.

So I do not know how the classic 3 Bucket System would ever apply in my case.

 

[SloHan]

This is a good thread to read and learn from. Everyone’s situation can be so different. One person may be a SIRE another is solely relying on investment income. Some want to leave a legacy or to charity others may want to spend the money during their lifetime. Whether they use a two , three or no bucket approach will vary.

 

[TheWizard]

Thinking a bit more about it, I have a type of bucket method as well.
My bucket is my checking account, where I target keeping $10,000 after all bills are paid.

Three times a month, money flows into that checking account, from pension/annuity, SS, and RMD.
That bucket overflows most months (more than $10K) so I move the excess into my taxable account settlement fund and eventually into stock index funds.

In my early years of retirement, I didn't have SS income so my method was a bit different then.
But it's utter simplicity now...

 

[Nomad4hire]

+1

 

[yakers]

Thinking a bit more about it, I have a type of bucket method as well.
My bucket is my checking account, where I target keeping $10,000 after all bills are paid.

Three times a month, money flows into that checking account, from pension/annuity, SS, and RMD.
That bucket overflows most months (more than $10K) so I move the excess into my taxable account settlement fund and eventually into stock index funds.

In my early years of retirement, I didn't have SS income so my method was a bit different then.
But it's utter simplicity now...

Pretty much it for the normal financial flow for 16 years now, when 'bumpy' events occur (like car for DW) just shuffle a bit in the brokerage account.

 

[Finance Dave]

No, although I keep lots of liquidity and a relatively low % in equities at all times

 

[ESRwannabe]

Maybe I am using buckets and didn't realize it. In general I keep a year's worth of expenses in cash.

 

[Milkman]

I have utilized a bucket strategy. I keep 4-6 months of cash in the sweep account and money market fund in my TIRA. I have money sent twice a month like a pay check to my checking account with federal and state taxes withheld. Dividends and interest are sufficient to keep that bucket filled. Beyond that, I have laddered CDs and a few bond funds that are equivalent to roughly 8 years of projected spending (intermediate bucket). My asset allocation is 70 - 30. I have been retired for over 9 years and have never had to sell anything to fund my cash bucket. On the other hand, I have been subjected to RMDs for the past 3 years which has started to erode the cash bucket. Next year I will probably have to start selling off some of my bond funds. Any excess funds that need to be withdrawn to make up my RMD are sent to my taxable account.

 

[mathjak107]

retired , age 71 spending down

three different portfolios are used plus 2 years cash

an income portfolio with about 7 years spending in a 25% low volatility equity funds and 75% assorted bond funds with short durations .

a growth and income portfolio 60/40 with 14 years spending in 5 different funds

all the rest in 100% equity’s in vti and berkshire .

plus a small experimental portfolio that is a leveraged risk parity portfolio .just an experiment right now .

it is supposed to produce the gains of a 60/40 with a fraction of the drawdown.

so far it has performed pretty well going back to 2019.

one dollar has

20% upro the 3x stock fund

13% tyd the 3x bond fund

so that gives 60/40 coverage

.67 cents goes into dbmf the managed futures etf

 

[audreyh1]

Good to hear from you Mathjak! It’s been a while!

 

[mathjak107]

Good to hear fro you Mathjak! It’s been a while!

thanks , getting back to my roots. ha ha

 

[jazz4cash]

Good to hear fro you Mathjak! It’s been a while!

+1.

 

[jazz4cash]

I follow a very informal bucket strategy which aligns with my overall AA. I think of bucketing as diversification over time. As many say it is a bit of a mind game and I don’t have any slick technique to refill buckets but rebalancing seems to work so far.

 

[frayne]

Bucket one, tradition IRA (65/30/5, index funds/CDs/MM sweep account) about 30+ years worth of expenses and currently taking RMDs.

Bucket two, brokerage account 70/30, stocks & CDs about 10 years worth of expenses.

Bucket three, local B&M bank checking, savings and a CD. Aprrox. three years living expenses.

RMDs and SS more than cover annual expenses so any excess goes back into either brokerage account or local bank CD's

Goal is to try and keep overall portfolio somewhere in the 60/40 range and rebalance when the equity portion get above 70%.

Never really planned it all out this way but just how it has worked out.

 

[RobLJ]

Like several have commented, I've pretty much viewed the "bucket" strategy as an allocation strategy, maybe with a larger cash allocation than many. I guess one issue is how often you rebalance, but it seems to me just a cross confusion of terminology.
I used to listen to Ray Lucia some when I was driving from Houston to Ft. Worth to help my parents with my disabled twin on weekends, but ...... it sounded like an allocation/rebalancing strategy with "buckets" as the term. I was driving at night on Fridays after work, so maybe I missed something really important. Just semantics, in my view--but maybe I missed something.

 

[rayvt]

Christine Benz is just a writer for a column. Several years ago I read an article she wrote about this buckets thing. I replied to that article and said that she mashed together two things -- buckets and rebalancing -- and got it hopelessly confused and all mashed up. And that she only showed one year and not how it would work out for more years.

She replied back with some words that indicated that she didn't really understand what she was talking about.

A column writer doesn't need to understand the subject that they are writing about, just need to be able to string words together that sound somewhat logical.

 

[GATime]

I do like following a 3 bucket strategy that for me is intended to guard against the market going south for a period of time. I'm only 8 months into retirement and overall AA is about 65/35. I will make some brokerage stock sales this year to bring that AA to a little under 60/40. That AA is broken out as Bucket 1, 2-3 years cash/short-term T-bills. Bucket 2 for years from 4 to 8-10 is in a 30/70 fund and Bucket 3 at 10+ years are in a total stock fund. Now since the market has had a pretty good run up, I'll shave off some of bucket 3 in my brokerage account to fund living expenses and leave buckets 1 and 2 alone.

This is my loose interpretation and allows me to not stress over any market moves.

 

[mathjak107]

the reality is cash buckets are not doing anything that plain rebalancing with no cash wouldn’t do

in fact studies have shown spending down in good and bad times from 100% equities has done about the same .

the higher up years without the weight of cash and bonds cushion the down years .

in fact a year or two cash means nothing in an extended down turn . a downturn would have to longer then that to really have an effect

kitces has done a lot of research on buckets and except for mental reasons there is pretty much no financial reason for having cash buffers

but i still like using them anyway

https://www.kitces.com/blog/researc...s-dont-work-unless-youre-a-good-market-timer/


https://www.kitces.com/blog/are-retirement-bucket-strategies-an-asset-allocation-mirage/


https://www.kitces.com/blog/managin...egies-vs-a-total-return-rebalancing-approach/

 

[FLSUnFIRE]

Like many, I think bucket strategies are just a form of market timing (or possibly could be viewed as AA if robotically refilled but that's not how the bucket strategy is traditionally pitched). I want to avoid trying to time the market so that leaves the AA rational and. then, why not just call it AA.


My buckets are "cash to live off of" which is about 1 years expenses plus a bit and the rest equities. The real buckets I have are all the accounts treated differently by the IRS which, IMO, also make a true "bucket strategy" or AA strategy challenging due to tax consequences while trying to maintain the buckets/AA spread among various accounts with different distribution rules and tax treatment (and possibly investment options -lousy 401k while working for example).


ETA: Since a big rational of the bucket strategy is to avoid emotional pain to a down market my strategy is I mentally (and in my spreadsheet) plan on a 30% drop tomorrow. I know I could survive it so anything less than a 30% drop doesn't really phase me (wouldn't be fun but it's built into my cash flow expectation). My contingency plan is BTD if it never happens!

 

[mathjak107]

if i remember , running 100% equities in firecalc at a 4% swr for 30 years had one more cycle fail then 50/50 .

spending yearly from 100% equities had pretty much the same success rate as 50/50 .

what varied is the balance left .

over 30 years 100% equities had the edge .

of course i wouldn’t want the volatility of 100% equities in retirement, which is why i am looking into leveraged risk parity models , but from a protection standpoint 100% equities worked as well most of the time as 50/50 and better under most normal outcomes

 

[target2019]

After careful consideration of my income-expenses flow diagram I (70+) see the following conceptual/practical boundaries:

Bucket A - Checking, bill-paying accounts (0-3 months)
Bucket B - MMFs, HYSA, dividends from taxable brokerage (4 months - 2 yrs)
Bucket C - SEP-IRA, Rollover-IRAs, 403(b) (3-10 yrs)
Bucket D - Roth-IRA accounts (10 yrs +)

Bucket A has two SSA and one pension monthly input. So the bucket does not need to pull much from the reservoir.

Bucket B will soon receive RMDs from Bucket C (in 2 years).

Bucket C is 60-65% equity funds. Some Roth conversion for two more years.

Bucket D is 100% equity.