Noelle E. Fox is a practice leader in the Retiree Services Division of Principal Financial Group.


Dave from WA posted over 5 years ago:

In a two bucket strategy, with dividend paying stocks as the income generator, would you put them in bucket 1 as basically the "cash generator" and put other long term growth funds in bucket 2?

Do people typically maintain separate accounts for the "buckets" or just separate them on paper?

Charles from IL posted over 5 years ago:

Dave, though dividend stocks do generate cash, they also fluctuate in value. The idea behind the three-bucket strategy in this article is that you have a certain part of your portfolio managed in a very conservative manner with the primary goal being capital preservation. As far as accounts, you can use one account and separate the balances into buckets. It takes more discipline than having more than one account, but it can be done. -Charles Rotblut, AAII

Jerry from FL posted over 5 years ago:

What about a systematic withdrawal of say 4 to 5% on the remaining balance in the account instead of adjusting for inflation? The balance could be up or down from year to year.

Alan from IN posted over 5 years ago:

This is the best concept going for retirement, and I have used it for years. Detail of what investments should go in the buckets can be found in Ray Lucia's book "Buckets of Money"!

Charlie from WA posted over 5 years ago:

I think of the buckets in a slightly different way which is that each represents the source of funds for that particular period of time. This causes me to think about required minimum distributions, social security, rental income, dividends,etc in terms of how each contributes to the income I will need over time. I have not thought so much in terms of the buckets flowing one to the next but rather as each providing for retirement at that point in time - kind of like separate retirements.

I do find the idea of buckets generally a bit liberating in that I can have a long and short term focus and include riskier assets in my longer term thinking.

David from OR posted over 5 years ago:

I recall reading several studies of withdrawal rates under simulated market conditions and comparing various asset allocations. My recollection is that a 4-5% withdrawal rate risks running out of money for approximately 5-10% of investors after 30 years. That strikes me as too large a risk for such a disastrous event. A withdrawal rate of 3.5-4% largely eliminates that risk.

Ranbeaux from LA posted over 5 years ago:

This is a little bit off subject, but a concept that I have found useful when discussing investing in riskier asset classes with risk-averse individuals is the concept of using the present value of your stream of annual Social Security payments. Say, for example, you are receiving $20,000 annually in S.S. benefits. If you assume a modest return of 4% over 30 years of payments, that stream of payments would have a present value of $345,840. Said another way, it would take $345,840 invested at 4% to provide you with $20,000 a year over a 30 year time frame. If you are a really risk-averse person, you could think of this $345,840 present value as a portion of your bond allocation that is generating an income stream that is fairly certain (let's not get into a discussion of the solvency of the Social Security system, please.) If you could think of this as increasing your bond allocation percentage, then you may be more inclined to invest just a little more in equities, which would likely improve your income sustainablity through your retirement years. The same concept can work for pension payments as well, athough most pension payments are not adjusted for inflation the way S.S. payments are. Of course, S.S. and pension payments also let you reduce your withdrawal percentage from invested assets, but if the present value concept allows you to step out a little more into equities, this may increase your probability of success in retirement.

Richard from KS posted over 5 years ago:

I am 75 and still working part time. My wife is 71 and still working full time. Total of $ 30,000 received annually from social security. We are allocated with 63% bonds and 37% equities. Only have around 2-3% cash. We have not begun taking distributions except mandatory social security distributions. Still contributing to Roth IRAs around $500 monthly. I find the 5 yr cash requirement for a bucket system way too conservative in my case because of extremely low interest rates presently. We plan to take 4% distribution of our portfolio in another year starting with taxable assets, then shifting to tax protected asets gradually. 40% of our bond portion consists of I- Bonds, which have a 3% base plus rate of inflation. Currently drawing between 6-7% in tax protected interest. Psychologically they are my tranquilizer. Lucky because they were purchased in 2001 when base high. Each year I work with a Vanguard CFP to ensure we are on target with our allocation. Otherwise, manage own portfolio with help of financial books and literature. Follow Bob Brinker's advice also.

David from MD posted over 5 years ago:

With all due respect to the author and the concept of buckets, I find it hard to accept as a credible or reliable way to fund what may be 30-40 yrs of withdrawals. The main reason for not buying into this strategy is very simple. The rates of return on all buckets is variable and subject to whims of the stock markets and completely out of my control.
Retirement is completely about income replacement. My income in retirement HAS to be there. Most likely, once my wife and I quit, there most likely is no going back so I am not going to assume that the market is going to give me some nebulous rate of return.
So, my strategy is to build accounts and create income that is one, tax free and two, guaranteed. There will be no hand wringing when markets crash or when taxes are increased on retirement assets both of which are inevitable.

Ted from NY posted over 5 years ago:

Bucket strategy? Glide path? These are not answers to questions I have. I have a pension, I have social security, and I have a budget. I have retirement assets that must supplement my income indefinitely, adjusting for inflation.

Part of my assets have to be in cash, and more volatile investments require a longer time horizon. These things have always been true; I don't see how retirement makes them different. And every year my target allocations change based on dwindling reserves, while my actual allocations change because of market fluctuations. If you want to be useful, help me with these things.

Barry from TX posted over 5 years ago:

Noelle, thank you for this insight into the psychological factors that HEAVILY influence retirement planning and decision making. Everyone believes they make completely rational decisions about money. Behavioral economic research has 30 years of research data that demonstrates emotions drive investment decisions at least equally. BE research proves that the drive to avoid losses is much greater than the drive to increase gains. It's all about "betting" on risks that you cannot control. No one can predict the future, only live through it. Building a strategy to address the future is ALWAYS based on the past. That's why EVERY INVESTMENT DOCUMENT says "past performance is not a reliable indicator of future performance."

James from CT posted over 5 years ago:

I'm not clear on the reason why assets are never redistributed from the less volatile buckets to the more volatile buckets. The first two buckets are sized by the requirement for a particular dollar value in each; any excess would go into the third bucket. This would tend to eliminate the "gradually growing more conservative" effect and reduce the performance penalty of the bucket technique. I don't see the need to have more in the first two buckets than is necessary to satisfy the withdrawal requirements for the time periods that they are designed to cover.

Melvin from NH posted over 5 years ago:

The "bucket" is an interesting concept. I am now 85. Both wife and I have pensions and great health benny's. Recently have decided to have a pro-advisor give us a hand w/800k plus and almost this in liquid assets. I love the DRIPS that I started some 45 yrs ago, this plus actively trading has put where we are today. Now hope to accumulate some more to aid our great-grandchildren through college. At our ages the bucket is a little late for us as we have done pretty well by ourselves. Great for younger ones.

Robert from CA posted over 5 years ago:

For me, buckets are time periods from now to life's horizon. I pick a period that is from now to ten years out (my period that would safely dodge the longest bear market). Then I methodically fund that "bucket" by selling riskier assets safely ahead of need. Lots is written on these issues. Advisors are well prepared to advise us on these issues.

In practical terms, my investment risk considerations are affected primarily by two factors: 1) the financial floor of my secure income stream (salary, social security, pension, rental property) and 2) my capacity to spend dependent on my health and related ability to spend or conversely need to spend for care. I believe investors would be well served by a prolog that covered these points in any financial planning advice. These factors may shift one's plans from spending everything on a life annuity and getting a "for life" reverse mortgage on the house to continuing the working life buy low, sell high strategy. With buckets and budgets fitting in between. I wonder what percentage of us are in that "in-between" category...

Jim from MI posted over 5 years ago:

hard to evaluate the comparisons between target+systematic withdrawal vs buckets without more information of how the comparisons were done. Was it MC (with what assumptions)? or historical series as Bengen did--if so what years?

Sorry, you cannot add comments while on a mobile device or while printing.