The Hidden Challenges of the Bucket Strategy

[@davidfolts5893]

Bucketing money is similar to mental compartmentalization. Its creator used it to stop his clients from panic selling in a declining market. Thank you for your excellent video, Rob.

[@jamesmorris913]

That's because it IS, "mental compartmentalization"..it's also PURELY logical. I'm trying to figure out all of the ANGST, surrounding it!!?

[@rick_vv7754]

Whether you use the bucket approach or a time segmented approach or not, there are psychological benefits of visualizing your safe portfolio allocations in terms of expected spending /withdrawals over periods of time while in retirement to provide some level of comfort during stock market downturns.

[@Fred2-123]

This is a great video! Rob, you covered all the complexities and downfalls of the 3 bucket strategy. I especially like when you laid out just how many accounts a married couple can have. This should be required viewing for anybody who is considering the bucket strategy.

[@markb1697]

All those various accounts that Rob said complicates a bucket strategy will also complicate a regular withdrawal strategy from a single portfolio. In both cases you need to determine which account to take your money from when you are spending in retirement.

[@901BluesGuy]

I'm a long term user of Boldin (formerly New Retirement) and I totally agree with the points you make here. In Boldin, I set up my accounts with labels as that align with their tax treatment and allow me to vary the assumed rate of returns. As far as monitoring allocation percentages, I just maintain those that in an Excel spreadsheet and rebalance, accordingly. These aren't necessarily mine, but example account labels in Boldin could be: - Traditional IRA (Stocks) - Traditional IRA (Bonds) - Traditional IRA (Money Market) - Roth IRA (Stocks) - Brokerage (Stocks) - Stock Options (Non-Qualified) - Stock Options (Restricted)

[@phil5564]

I started with Rob's spreadsheet and added an income/expense sheet. Google Rob Berger Spreadsheet.

[@PH-dm8ew]

in the end it is all 1 bucket, the advantage is help calm and stop poor decisions during downturns (which studies show the majority of people need). The disadvantage is the cash component loses to inflation. Yet it is a short term shell game. You have to make those decisions in your example one way or the other. I still don't understand why after you fill the cash bucket, why you cannot rebalance to 60/40 or whatever at that point? Every estimate of gain/loss is nothing more than a guess.

[@JonLuskin]

Rob, another phenomenal job on this video. I'll be sharing this as a resource for some of the folks that I work with (those interested in the bucket strategy).

[@plainfielddentist]

I don’t get the perceived complications of two buckets. Rob presented a paper involving Buffet 90/10 portfolio that presented a “twist”. Simple enough: when equities are up, pull from equities and rebalance the two buckets. When equities are down, pull from cash bucket and DO NOT rebalance. Simple and done!

[@Dave-FIREd]

But isn't the idea of rebalancing to do it regardless of the market being up or down? ie. If the stock market is down, pull from "bucket1" or "bucket 2" to buy stocks and bring overall allocation back to target. I think that might have been part of what Rob was getting at in a way.

[@plainfielddentist]

Just avoids selling equities when they are down. Gives bucket two a chance to recover before selling shares. At least this is how I perceive the bucket strategy. I’m not saying this is wrong or right. Just saying the bucket strategy does not need to be complex!

[@Dave-FIREd]

@@plainfielddentist 100% agree! I'm just saying, when stocks are down, the *assumption* is that your bonds would be up, and that's when you rebalance to bring your stock/bond allocation back in alignment. For me personally, I prefer not to do it that way and just spend down my cash/safe bucket until stocks recover.

[@plainfielddentist]

@@Dave-FIREd precisely! I know Rob says 2022 was a once in a generation hit with both stocks and bonds taking a big decline simultaneously, but I’m glad I had cash in 2022 as I’m retired. And why with the exception of T-Bills, I’ll never buy bonds again (unless it’s a balanced fund). I use dividend funds as my ballast. There is no “right way”. Only what you are comfortable with. There certainly is an opportunity cost to having cash to the side, but I sleep very soundly :)

[@gizmobowen]

Leave it to Rob to explain how this simple, ultra safe strategy, has no clothes. I've had the same sorts of questions when trying to understand how to implement this and come up with nothing but confusion. It seems like such a simple idea, until you try to implement it and then the wheels fall off and you have to incorporate all sorts of extra rules. It really just makes me want to plow my money into an automatically rebalancing fund and sit back and let brokerage firm do the heavy lifting. I especially like Rob's videos where he says - Don't Panic, and it seems like managing buckets provides a lot of opportunities to panic (according to some good or bad rules). Thanks Rob.

[@johndoerr2505]

Rob, I greatly appreciate your wisdom as I have recently entered retirement. I look at the buckets this way. The funds I need to spend each year will be allocated to cash and bonds and that balance will cover 8-10 years of spending. If the market is going well I replenish and should the market perform poorly I would run that cash/bond balance down to just a few years letting the market rebound. My thinking is this approach allows an investor who has saved well to keep a larger percentage of their overall allocation in stocks that in the long run have outperformed bonds and cash but still have a buffer to feel comfortable should the market perform poorly over a long period of time such as the 1960's.

[@Dave-FIREd]

Yes, I agree with this comment! I understand the logic behind rebalancing, but with the bucket strategy, I think the idea is to be able to hold a higher % of the portfolio in stocks/growth, and ignore rebalancing when the market is down. Live off bucket1/bucket2 until market recovers, and top up those buckets when you can. If market is in a long term uptrend, then keep bucket1/bucket2 topped up monthly/quarterly or at whatever interval helps you sleep at night and maintain confidence to spend.

[@tommut]

Wouldn’t it be a simper mental model to just have a more aggressive allocation like an 80/20 portfolio, with a rebalance rule like “don’t rebalance if stock performance down more than 10%” ?

[@StevenPaich]

@@Dave-FIREd I agree I use the bucket strategy but I don't agree with what you said. When the market is down you should be buying and rebalancing at lower prices, right? Buy low sell high?

[@Dave-FIREd]

@@StevenPaich Then you'd be depleting your cash reserves which defeats the purpose of bucket 1, which is to weather a long-term market downturn. Depending on how you setup your buckets, if you have a bond position representing years 6-8 or maybe 6-10, but you still have ~5yrs of safe "cash" to live on, then you could (and probably should) do the traditional rebalancing. But if I only had 5yrs in bucket 1, and everything else was in stocks, I would not rebalance during a market slump. I'd live on my cash until the market recovered, then replenish my cash.

[@sfbrown69]

Great talk on the bucket approach. I've tried implementing this plan in the past, but I kept running into the very problems you enumerated, including problems I never ran into because I couldn't truly implement this approach. This was both illuminating and affirming.

[@jamesmorris913]

Nothing could be more logical and rational, than "bucketing"..and 2021-22 just confirmed that to me, all the more. The PEACE that this approach brought to me, at that tumultuous time, just reinforce my stance, all the more. I was doing "bucketing" LONG before I ever even heard that term applied to it, in fact!

[@jimdandyfield1848]

It’s just mental accounting. No real advantage.

[@redherringklug4731]

Thanks Rob. Great content as always! I use the bucket strategy as a concept for my portfolio risk/allocation rather than actual buckets. “Bucket 1” - 0-3 years low risk: 10% Cash/MoneyMarket/TIPS. At 4% withdrawl and 2% int/div per year on portfolio “Bucket 2” - 4-9 years moderate risk: 10% BND Bonds + 10% VIG Dividend Appreciation Stocks “Bucket 3” - 10+ years high risk growth: 70% mixture US/Int’l/Large/Small Equity Don’t worry about the actual buckets, we already set them in our portfolio mix based on risk tolerance. Just stick to our plan, rebalance and feel confident we can weather the storms easily for 4 years and not too difficult for 10 years.

[@Gzluweez]

If your bucket 2 is a balanced fund like Wellington, just pull off the top and the rebalancing is done by someone else. Maybe suboptimal maybe not, but at some point I’ll be too impaired to think straight so it works for me.

[@wade74567]

Personally, I like the bucket strategy. It makes me think about what I need for the next few years. Funds (interest from bonds and dividends from stocks) can flow to bucket one. If bucket one is getting to big, put the money back into the stock or bond bucket as needed (which ever is lowest). As far as modelling, I'd just use an appropriate split depending on what buckets one and two add up to. I see modelling for a long term projection and the bucket strategy as method to implement it.

[@manuvns]

DO people with pension and social security really need 2 buckets ? Does the pension and Social security not act like Cash bucket

[@xlavahott4547]

Very good point. I look at bucket-one as day-to-day repeatable known expenses that the pension and social security can't cover.

[@michaelsd284]

@@xlavahott4547 I agree with this. Buckets are intended to "fund" the gaps between your retirement income streams (SS, Pension, Annuities, etc) and cost of living expenses.

[@TedWesterfield]

I would consider SS and pension as a bond. It will never run out for as long as you live. One cannot say the same for cash.

[@xlavahott4547]

@@TedWesterfield One cannot say Social Security won't crap out. One side of government hates it and the other side is too chicken to address it.

[@TedWesterfield]

@@xlavahott4547 I see zero chance that SS goes away or there are any meaningful cuts to benefits. Politicians are stupid, but not so stupid as to piss off a voting block of almost 70 million people who receive SS benefits. These congressmen would simply never get re-elected if they voted to allow major SS benefit cuts. The likely scenario is what happened in years past. In 1983 (and again in 1993) congress kicked the can down the road till the 11th hour, then increase the OASDI tax rate to maintain solvency. I highly suspect congress will also make up to 100% SS benefits taxable, when the change is ultimately made.

[@bridgecross]

I think I finally get the bucket strategy. It seems to be a way to get people to ignore the "long term" bucket and leave it untouched, by making them feel safe with the "cash bucket". But for folks who can wrap their heads around volatility, and don't react to volatility, the cash bucket is just lost opportunity.

[@BooRadley1228]

I agree and disagree to an extent. It is a good way to encourage people to LEAVE their long term investments ALONE in turbulent markets. It is also a good way to keep some cash (enough cash) on the sidelines as needed for anticipated expenses. Less likely forced to “sell at the bottom”.

[@markb1697]

@@BooRadley1228 I agree with you. During our working years (Accumulation), the conventional wisdom is that any money you need within three years should not be in the Stock Market (think college tuition, down pmt on a house, etc.). So once we retire, does it make sense to NOT have planned spending for the next three years in a safe account? That's all that bucketing is.

[@ptpatrickusmc]

Very timely video for us. Thanks much!

[@LarryWilliams-xu8qs]

I retired 7 years ago and started taking RMDs using the 2 Bucket system just as Harold Evensky describes, with 65% Stocks / 35% Bonds and Cash. We take our RMDs in January each year to fill up the Cash bucket, taking it from Stocks or Bonds whichever is up. And rebalance whenever Stocks drift +/- 5%.

[@jefft9729]

Excellent approach I think. What do you do if both stocks and bonds are down and the cash bucket needs refilling? With an RMD you have to withdraw from somewhere in your retirement account. Selling low seems unavoidable. Also is your cash bucket inside or outside of your retirement account? Best regards

[@LarryWilliams-xu8qs]

@@jefft9729 You are right. With RMDs you must take a distribution so if both are down it comes from the one that is down the least-usually Bonds. Yes the Cash Bucket is outside of the Retirement accounts-a joint Money Market account. Then we have an automatic monthly amount transfer from the MM to our checking account for living expenses.

[@StevenPaich]

@@jefft9729 Good question! I remember there were only two times since the year 2000 that there was, no where to hide syndrome, when stks and bds were both down. So, as you may know the generalization is that this is rare. Rob, stated it is more rare but I do remember this happened once before early 2000's. The answer is there is no answer for this question. Only do you best and get thru it really and hope long term history is on our side.

[@TedWesterfield]

3 buckets; cash, total US bond and total US equity index funds (like Bogle, i don’t see the need for international). 60/40 allocation; 60% equity, 35% bonds and 5% cash (about 1.5 years annual spending needs in cash). Once yearly, i determine the overall portfolio balance. I then transfer 1 year of annual cash needs into the cash bucket from the bond and/or equity buckets. I then rebalance and put 60% of the end of year portfolio balance into the equity bucket and the remaining 35% (or so) into the bond bucket. Repeat annually. I also do opportunistic rebalancing during the year if the asset allocation varies 15% or more from the intended 60/40 allocation.

[@Dave-FIREd]

I'm only in my first year of early-retirement, and we have slightly different allocations, but what you described is 100% my plan.

[@corydoyal8709]

In your cash bucket, given it’s only 1.5 years, are you doing all HYSA/checking or including any CDs at the far end of that range to get at least some returns? I’ve been projecting 3-4 years in bucket 1 with about 50-60% of that in laddered CDs of the best rate I can find and still have the required liquidity.

[@TedWesterfield]

@@corydoyal8709 1.5 years cash is in a money market account currently yielding 4.5%. No CDs. I keep the extra 6 months of cash liquid in the event there is an unexpected large expense, i. e., need a new roof, heating system blows, etc. I replenish the 1 year of cash annually.

[@fryrpc]

I go with a simple 60:20:20 Stocks:Bonds:Money Market Fund split and rebalance at time of withdrawal. Feels like three buckets to me.

[@ZCAR355]

All U.S. Stocks, if not what % in International?

[@jefft9729]

I like that approach. I would also say withdraw from which ever bucket has performed the best. That might mean not touching the cash bucket (unless equities and fixed income are both down). Rebalancing is mandatory.

[@JJJ5.7]

@rob I've asked this question a couple of times already and waiting for your thoughts. What if a person has enough that interest from the bond bucket and dividends from the stock bucket funding the cash buckets and fully covering income needs. Won't this work? Maybe reinvest dividends if cash flow isn't needed.

[@FlagstaffChief]

It will work, IF you have enough to start with.

[@jps0117]

I agree. I'm thinking of a phrase that rhymes with "bucket" :)

[@BrettBustamante]

This video isn't really pertinent to me, but I just love how much Rob hates the bucket strategy.

[@TomcatSTL]

I give Rob more credit than lazily saying he hates buckets. His older video goes in depth discrediting the purported advantages.

[@BrettBustamante]

@@TomcatSTL You're right. I was definitely overgeneralizing. I give all credit to Rob.

[@tomc409]

Suggestion: Please interview Fritz Gilbert about his practical use of the bucket strategy. That would be an interesting discussion.

[@Dave-FIREd]

Fritz is awesome! His blog posts really helped me formulate and solidify my bucketing plan.

[@sandrakaylindsay952]

Hi Rob, I have enjoyed this video on modeling bucket strategy. I think I may have a solution for your problem of not knowing how stocks are doing and thus not knowing when you will move money between buckets. Look at the problem on the consumption side. You have input annual expenses. You have models for the Bucket#1 (cash-like for x years max) and Bucket#2 (60/40 or 70/30 for remaining investments). The two bucket types have different estimated rates of return. In Money Flow, model an initial filling of Bucket#1 to desired max and "exclude" Bucket#1 accounts from withdrawal strategies to keep them full. While in the short term you do not know the market or when or from where you will actually make the transfers, over the long term the goal will be to keep Bucket#1 funded. This should let you model bucket strategy concepts - money is put into Bucket#1 to reduce sequence of returns risk for x years worth of money despite a lower planned return. Vary the number of years of expenses placed in Bucket#1 to explore plan effects. This should not interfere with tax strategy suggestions from Boldin.

[@Norman-z3s]

For the 2 bucket portfolio why not use a 60/40 mutual fund such as VBIAX? I assume the fund constantly maintains the 60/40 ratio (+\-) and you just need to replenish the cash bucket quarterly, by selling shares in VBIAX.

[@garya2223]

Much easier!

[@michaelfrew5652]

Fantastic lecture thank you Rob, also maybe using the actual expenses % is a simpler way to illustrate how to trigger the rule(s) strategy?

[@hummerchine]

Particularly great video Rob!

[@espesq]

I had planed that, as part of my Fixed Income/Bonds position that I would include liquid holdings like SGOV rather than having 2 or 3 years in cash. I would probably run about 6 months of cash outside of it for expenses. In other words, my 30-40% "bonds/fixed income" would include Corp Bonds, Bond ETFS and Munis and short term treasuries... do people consider SGOV as "cash" like MM or HYSA?

[@tomc409]

SGOV is cash-like. Some people even use it for their emergency fund. Others use FDLXX/SPAXX at Fidelity or VUSXX at Vanguard - as two examples. It will be interesting to see how it plays out as the fed rate continues to decline.

[@jvini68]

I use it for cash instead of Fidelity money market. It's a bit confusing when my cash for the last couple years yields more than my 8 year Treasury ladder but a good problem.

[@jeffgutowsky1770]

Rob, would love to hear your thoughts on Invesco Bullet Shares to create a bond ladder for fixed income

[@GoKU-xx2vg]

He has already done it. Search his channel

[@johnbrown1851]

I'm using them, both investment quality and high yield bullet shares with a side of CDs purchased before the fed lowered rates. I'm using them to fund 6 years of a bridge until age 70 and SS will be used.

[@ChristelleSingler]

My portfolio for the past 30 years has always been self managed and I own 3 shares of Berkshire Hathaway Class A stock (BRK:A) which I bought in at about $17,000 during the mid 90s, I’m currently liquidating some of these positions to incorporate new Gen. Stocks, but am I better off re-investing into Gold as it seems stocks are a little too unstable right now.

[@liammason3137]

Invest in real estate, ETFs and high-yield savings account.

[@Eljifzw]

Yes just buy Gold and protect your assets, the stock market is a rollercoaster.

[@ChristelleSingler]

Impressive can you share more info?

[@ChristelleSingler]

Thanks a lot for this suggestion. I needed this myself, I looked her up and found her page easily. I have sent her an email. I hope she gets back to me soon.

[@Steve56-w9r]

The big problem with rebalancing when stocks are down is that when you're already spending from fixed accounts, you're moving even more from fixed to stocks, effectively reducing how long you can sustain a down market.

[@hydrogolfer]

Agree, makes me think the idea of having say 8-10 years in cash (cash equivalent)/bonds is to survive the 12-24 months of a typical down market but to also be opportunistic to buy low. The expectation is that a 1-2 down market will recover by say year 5 and you will have made some decent returns on the newly invested money. Is that what people are really doing?

[@KnifeSteelNerds]

When stocks are down is the best time to buy them. That’s how rebalancing works. You sell things that are up and buy things that are down without timing the market. With buckets you would have to make a bunch of timing decisions that wouldn’t be necessary with rebalancing.

[@Steve56-w9r]

I agree when growing your portfolio. In retirement, drawing down your portfolio, takes a different approach.

[@StevenPaich]

Right now as the market climbs and since most of my retirement monies is in Taxable accounts and I am in a very low tax bracket and use mutual funds. I am not reinvesting my earnings but having them replenish my cash. Only when I take this cash to live on will I be taxed at my low rate. This keeps my cash around 1.5 yrs of spending for my safe feeling to ride out any market downturn storm. I might turn on reinvesting when the market goes down to buy low. But, I am open for suggestions. I have a balanced 60/40 portfolio age 67, & I'm 2 yrs into retirement.

[@StevenPaich]

Oh and my withdrawal rate is about 3.4% right now because SSA provides most of my income needed to live after downsizing my needs. I want to do some vacations while we can soon and those can be large withdrawals which doubles my withdrawal rate. I am guessing I should do that in up market years. Any thoughts.

[@nr5384]

Boldin(new retirement) is a tool for looking forward, not for managing your finances in the present

[@dawsonspath2257]

Another great video Rob - What if the next one on this general topic is a working example, in detail, of a couple of the ways you manage this using your dummy accounts. Show the exact steps, the accounts, the transfers, rebalances you would recommend based on certain market condition scenarios over a few years. I think this would be very useful and help people see the theory at work.

[@mdavern]

Not sure if this fits under a bucket concept or not....I was thinking 60/40 traditional with an emergency fund (bucket) equal to 2 years spending. The emergency fund is just that, for when the roof blows off (literally and figuratively). So, do your withdraws and rebalancing like normal in your stock/ bond portfolio. If both markets are down (or the roof blows off) tap the emergency fund and don't withdraw any money from the 60/40 (which is still rebalanced) that year. You can obviously only do it twice but research I've seen indicates that the 4% rule (already supposed to be conservative/worse case) performs much better if you can even avoid just one bad year, especially early on. This can't help a 10 year bad bear market but the traditional 4% rule (and realistic spending adjustments) already accounts for that, at least somewhat. Why play all these games? I'm thinking set it at 4ish% withdraw, hold 2 years outside the market in a money market, be mindful and flexible when you need to be on spending and hopefully, we don't see a sequence never before seen in history.

[@7424lyon]

Rob, I approx. use rhe "3 bucket strategy" and we have Brokerage, IRA, Inherited-IRA and Roth accounts. We don't use a software program other than Excel just for big picture tracking. We keep a minimum of 8-10 yrs. in stable/insured/or TBills. The rules around RMDs dictate withdrawls from those accounts, the remainder of living expenses come from brokerage. Simple.

[@edshipe2555]

Thanks Rob love your videos.

[@WayneMarcy]

@joekuhnlovesretirement as a proponent of the bucket strategy and Boldin, it would be interesting to hear how you do this.

[@erickarnell]

Setting up a written investment plan for when and how to move funds, withdraw, or rebalance aeems to be important going in. You don't want to be second guessing based on fear (or greed) in the moment, and permanently damage the work of decades.

[@gcburkett]

I have struggled with coming up with a rules based system for a 3 bucket system although it appeals to me. I do however want to do some time segmentation. How do you recommend dealling with different periods of time?

[@DHawkman]

So, just watched this and your blended fund video. The one fund Wellington concept was interesting until I thought about investment placement issue… I.e. preferring equities in Roth and bonds in traditional, which then would force you to use multiple funds, which plays better to bucket strategy as well.

[@ukamateurinvestordiary6620]

For me any strategy be it rebalancing, buckets, dividends i would have the cash levels be dictated by my spending patterns rather than a number of years. I'd have my personal spending cash and depending on the strategy there could be cash in the portfolio too but treated as separate. For instance, if you replace your car every 7 years my spending cash will be lower on day 1 of ownership of the new car and gradually increase to year 7 when that cash gets spent. Same for other things. For big money items that are a would be nice to have but don't need i might just leave that capital in the portfolio invested. I don't need that extra nice car but if my portfolio does extra well for the 7 year car replacement cycle maybe i'll take more from the portfolio that year to get the nicer car. Sets you up for a fall though if the 7 years after don't go so well and you're used to the nicer car. This also means the withdraws from the portfolio are smoother. Less big spikes in withdrawal rate on car buying year which could be a bad moment to be taking cash out. I actually don't own a car so i keep enough spending cash for a basic one now in case i need one urgently.

[@SuperDagod1]

I think a 5 year cd strategy works best. Five years worth of spending in a 1,2,3,4,5 year cds and the rest in a good fund that grows untouched.

[@Lion_McLionhead]

The lion kingdom's stonk bucket is the emergency fund & there's no intention of ever taking anything from it. The cash bucket is the retirement & it's going to be drawn to 0. The fact is before ZIRP & helicopter Ben, they used to recommend being out of stonks by 60.

[@louismolino8674]

Great video Rob. I'm not sure Boldin is much better with respect to modeling asset allocation moving into the future than it is at the bucket strategy. You can certainly set asset allocation at the start and set expected rates of return, but you can't effectively "rebalance" in future years. However, Pralana does have this capability. Not sure if it would be better than Boldin at modeling the bucket strategy, but I don't use that strategy, so I've never given it much thought.

[@FunStuffBuddy]

Great points!…but SHOULD we do? Or what do you do instead? Also, Thoughts on 3 years expenses in cash, and the rest in 75% Total US ETF/25% total Intl ETF? Only time to not sell stocks is when it dips below 20% of the all-time high (and use only your cash) and then replenish when get above that 20% dip threshold?

[@drneal3479]

Do I really need 2-4 years in cash ? Can I consider some of my bonds as cash/liquid if I set up a bond ladder ? How about 1 year in cash, then 3-6 1 month ladders, finally 2 years in 3 or 6 month bonds ?

[@james1000]

Higher cash will be better if protracted market crash and bonds fall too. On average, you’re probably right and 1-2 years of cash probably does better overall

[@jvini68]

​@@james1000especially if you have a bond ladder where you hold bonds to maturity. A falling bond market won't affect your bonds.

[@J-2024-v8i]

In the example of selling stocks from taxable in a down market and then replacing them by re-buying them in your Trad IRA (thru selling bonds there and using the proceeds), the problem I see is that you now changed your asset location by having more stocks in the Trad IRA. This could be a problem if you are trying to slow down the growth of your Trad IRA to avoid having high RMDs in the future.

[@kyleevanston]

I Hit 110k today. Thank you for all the knowledge and nuggets you had thrown my way over the last months. Started last month 2024. Financial education is indeed required for more than 70% of the society in the country as very few are literate on the subject. thanks to Brooke Miller for helping me achieve this

[@GertonTootle]

I'm surprised that you just mentioned and recommended Brooke Miller, I met her at a conference in 2018 and we have been working together ever since.

[@sarapalin]

The very first time we tried, we invested $1000 and after a week, we received $5500. That really helped us a lot to pay up our bills.

[@anatolyivan]

I'm new at this, please how can I reach her?

[@sole27ore]

I just withdrew my profits a week ago, To be honest it was an amazing feeling when the profits hits my wallet I wish I could reinvest but, too much bills

[@kyleevanston]

she's mostly on Instagrams, using the user name

[@DicksonMaimouth]

Why not just put retirement money into a balanced fund like VBIAX or Wellington’s VWENX or any number of multi-asset funds? Then pulling from buckets and rebalancing doesn’t matter. What am I missing? Do you have a video on this too?

[@mattpenn3972]

I definitely agree... bucket/account modeling is complicated and for us it will (at best) only have historical returns as estimates for those accounts and buckets. I'm also wondering about how to intelligently include SS and pension into our long-term calculation like a commenter below... but that's a few years off. (My guess is that our IRAs/Roths will remain 100% equity at that point). Our current plan is to keep 1-2 years of cash, and then 6-8 years in a low volatility Golden Butterfly Portfolio, rebalanced quarterly. Spending out these two accounts (plus pension) brings us to our SS date; the GBP has a low ulcer index with max drawdown periods of 2 years (so it's covered by the cash bucket), and we've calculated that SS plus pension will cover 90% of our spending needs when we get there. The rest will go into index funds and we'll be converting a lot of it to Roth accounts before we take SS. We'll simplify to have 2xIRA and 2xRoth... plus whatever banking makes sense for cash.

[@markb1697]

This sounds a little like "buckets" 😏 Bucketing does not have to be exactly like Rob described - to me it's the concept that matters and your approach is a form of bucketing.

[@realestatecozy897]

Hi, why do you think people would have investments with vanguard, fidelity and Schwab as oppose to only using one broker such as fidelity for all their investment needs?

[@BooRadley1228]

I suppose people have/had 401k/retirement money in one of the mentioned brokerages but opened accounts in others over the course of a lifetime. I personally don’t care for the fidelity required cash component fidelity has on their managed accounts.

[@bradjohnson233]

One adviser I interviewed was big on the three bucket theory (which frankly I was not that familiar with). It is a nice 'concept' for those with limited assets but (as you show) the implementation/ outcome becomes burdensome/ridiculous. It is like the standard starting retirement advisor discussion with the 'how much do you need to live' which is commonplace although we all know telling the car salesman 'what payment can you afford' is the ultimate stupidity. You seem very mainstream in your thinking Rob but I enjoyed your video and will begin watching.

[@peterwright837]

I think you’re overstating the complexity of a bucket strategy though in fairness it took me quite a while to understand it myself. Personally I prefer the term time segmentation. One issue I kept struggling with is how to determine what asset allocation made sense for my retirement portfolio. The focus on short term volatility doesn’t make a lot of sense to me when I’m investing for the next 30-40 years. However, do you really want to have money you plan to spend in the next 2-3 years in the stock market? What about 5 years? Personally I decided to keep 1 year of money needed from our portfolio in cash and 5 years in bonds, plus some extra money for buying a home in the next 5 years, which currently results in about a 70/30 asset allocation. However, once we’re 5 years away from social security kicking in our annual need from our portfolio will go down and I plan to let the bond allocation decline correspondingly. To me this strikes a good balance between safety and keeping our money growing for the long term, and has the major benefit of not just picking an arbitrary asset allocation out of the air. To each their own.

[@markb1697]

Totally agree. There is definitely NOT only one retirement solution and each retiree needs to consider what will work best for them. There are key factors that will vary for everybody like fundedness (how rich are you), spending needs (how much of your core spending is covered by guaranteed income (pension, SS, Annuity?, and Risk capacity. We will have a variable spending plan using software where we will spend more than 4% during our Go-Go years and less later. The approach you suggest allows us to spend on fun regardless of market conditions. I will remain agile and revisit the plan each year. But we don't want to pause our plans just because of Bear Market.

[@jeffhorne2553]

Ok, so if I understood, 60/40 ish split in assets, go in every quarter, 6 months, once a year, rebalance with information that is current . There is no need for special software that complicates retirement.... Stocks and bonds should not be on the decline at the same time so if that holds true I will be rebalncing from a up account to a down account and over the life time of my retirement, I should not need to live on cat food.. Let's Roll!!!! 21:47

[@julioerodriguez6097]

I never sell my principal (aka sell stocks) unless the company valuations change drastically and I have to sell my position. Is very rare but it happens. Furthermore, I use my dividend distributions from SCHD, DGRO, JEPI and my other satellite stock positions that pays dividends to fill my money market fund (SPAXX). I move funds once a year from my traditional IRA money market fund to fill my other two buckets and re-balance quarterly as needed. I also have the fortune of having two pensions from the private sector and the military. Thanks!

[@markb1697]

Does this mean that you will never tap into your principal to have more fun? Are you planning to leave it all to Charity or heirs? I too and blessed with a Military pension so with SS we have most of our base expenses covered. We therefore can spend down our principal and plan to do so.

[@julioerodriguez6097]

@@markb1697 My plan is to start tapping into the principal after I'm 60 Yrs old. I'm currently 55 Yrs old and I don't want to incur into the 10% early distributions. I also want to do Roth conversions after 60 since I want to minimize RMD's later on. The last thing I want is to past away, my spouse has to deal with our IRA and the "widow's tax torpedo" later in her life. Cheers!

[@favjr]

When your investment plan sounds like a gardening operation involving buckets, ladders, hoses and flower pots, its time to KIck That Bucket!

[@mikephilpot9857]

So glad my wife and I don’t use the bucket strategy for our retirement. I know folks love it, but we don’t. Our portfolio is just equities in the market and guaranteed lifetime income sources (Social Security, Pension and SPIA) outside the market. The guaranteed income covers all planned spending needs and we pull from equities for additional discretionary income. If the guaranteed income builds up more than 6 months of spending, we just invest the extra into our equities. No buckets, no bonds, no nonsense. 👍

[@TedWesterfield]

Nice. That’s an easy and simple plan. “Simple” is the watchword for me.

[@mikephilpot9857]

@@TedWesterfield Yeppers. Anything to simplify and automate our retirement plan is what we like. 😁

[@Fred2-123]

Yay! Another man after my own heart. People spend way too much time overthinking it.

[@M40-observer]

This is retirement psychology. The basic motivation is to help us deal with market anxiety. Advisors love the mechanics of money management and naturally complicate the system. There are simpler ways of achieving the goal of having enough cash to cover expenses for a few years, and keep having enough.

[@vincentdesalvo1464]

I believe in the KISS method which works great for me, but I know some people love too over complicate there everything.

[@jeffb.2469]

Cash & CD's in a Brokerage, 40/60 Fund (Wellesley) in the Traditional IRA, and 100% Stocks in Roth IRA. Like August said, don't overthink it. I don't have a plan, but keeping it simple, is my plan.

[@dwood6285]

seems to me that the bucket approach is a "safety first" decumulation strategy with the main focus on keeping the near term spend bucket topped off. "Optimizing" returns by buying stocks when they're down seems to be of lesser priority. that's a tradeoff that needs to be weighed by the individual investor.

[@jenniferbissonnette2258]

I don’t see much difference between a 2 bucket and a 3 bucket strategy. To me, if bucket 2 (in a 2 bucket strategy) is 60/40, then isn’t the 40% in bonds essentially your 2nd bucket (5-8 years of expenses) and the 60% stocks (greater than 8 years of spending).

[@Oleldygmr88]

Well most people have mutual funds that are 60/40 split so you aren’t able to just sell the bonds.

[@petertu7359]

If your bond bucket contains a laddered bond portfolio, the conversion to cash becomes automatic. For example, if I have 10 year bonds with principal amount equal to 1 year of expenses, then in year 10, when my bonds mature, I will have cash equal to 1 year expenses. If I want to get fancy, I can take a quarter of the maturing bonds to invest in 3 month T-bills, 1 quarter in 6 month t-bills and 1 quarter in 9 month T-bills.

[@Username_CC_]

Don't you just love complicating it even more

[@petertu7359]

@@Username_CC_ A bond ladder is not particularly complicated. You just buy bonds maturing each year in a face amount equal to your estimated expenses/liabilities for each year. More complicated would be to duration match your fixed income assets and your liabilities and rebalancing at some interval based on the convexity of your portfolio. Still not complicated but it does require some calculus knowledge. You really only need to calculate first and second derivatives. If you want to get really fancy, you can throw in futures and options into the portfolio to hedge interest rate risk. Then you would need some rudimentary understanding of stochastic calculus (Ito’s lemma and the like).

[@paulb9156]

I wonder if Financial Advisor software like Snap Projections can model bucket strategies well.

[@scott1441]

Just rebalance your asset allocation - forget bucket strategy-

[@lovethomassowell]

The bucket strategy is like a wet diaper. It might feel good to the recipient in the short-term but it doesn't really get you anywhere.

[@Mitzi73]

My problem with the bucket strategy is when the market falls, when can you pull gains after it rises?

[@tomc409]

Search for The Bucket Strategy in A Bear Market to find a good example. Make sure to read past the conclusion and look and some user comments and responses.

[@jvini68]

I have always kept things simple. I just retired. My brokerage account has a total US stock index fund and small portion of total international. I have a Roth IRA with all equity indexes and a couple stocks. I have an IRA with mostly bonds and a smaller amont of total US market index. I'll spend from the brokerage account through dividends and monthly sales (should be enough for 20 years, especially when i take SS in 13 years). I'll rebalance annually in the IRA. If I have to rebalance into a money market or bonds in the brokerage (a good problem because it means stocks in my IRA arent enough to being me back to 60/40) that's ok. I'm confused by the bucket strategy. Am I missing something?

[@pgraham5674]

Rob, enjoyed the video (not saying much - I enjoy all your videos). I completely understand what you're saying and where you're going. I am puzzled by one thing specifically dealing with "the" bucket strategy: Say I set up three buckets as per your example in 2024 - 2-4 years' worth of expenses in bucket 1, 5-8 in bucket 2, and the remainder in bucket 3. Is rebalancing a required part of the defined bucket strategy? Seems to me that, if that's the case and we're always rebalancing to these allocations, we're going to die with three buckets fully provisioned. Is there some point in time when the expectations are that a person would simply drop this model, or alternately stop rebalancing and start spending "left to right", depleting bucket 1 by 2028, bucket 2 by 2036, then spend from bucket 3? (( know the latter would likely have that person heavily weighted in stocks later in retirement, along with the associated possible risks.) I'm not faulting the strategy necessarily; I'm just not seeing the eventual endgame. If it's simply an alternate way to ensure a reasonable allocation strategy, then I'm with you in your analysis, certainly in the later years of retirement. Any insight would be appreciated. If, as others have suggested, it can be used as a visualization tool rather than something that manifests itself in investment or allocation strategies, I think that's great. Life is complicated; we should be doing what works well for each of us. Thanks!! Peter

[@i-postm4943]

I've started to ponder this topic as well. One cannot give an accurate response without knowing more information such as goals, account balances, expenses and date of death (ha!). My plan is at some point, say age 78, to adjust my asset allocation to invest for my heirs and not so much for myself. Also, by that time as a DIY investor, I want things to be as simple as possible and on autopilot where possible assuming mental decline. Assuming an investor has "successfully" passed through the sequence of return risk time period and assets continue to grow long term given a reasonable asset allocation, I don't believe it matters a whole lot if say, at age 78, you let your rebalancing/bucket strategies collapse and the market crashes for a few years. I suppose there are papers written about this topic and wealth planning software which may also help to address your concern.

[@bobby350z]

I wish retirement software like boldin let you pull money from multiple sources at the same time based on your objectives like lower taxes. Right now it is deplete one account then next then next.

[@paulb9156]

I would be good to have cash in an account with interest that at least matches inflation. Suggestions?

[@FlagstaffChief]

Two buckets, three buckets…. If you have an asset allocation strategy with rebalancing, the buckets seem to let you time the market without market-timing. The rules for moving money between buckets seem to be personal to each investor. Whatever they are, they apply between rebalancing events. Eventually a bucket has to be refilled, which brings about some kind of rebalancing. But you can do that without buckets. I guess I just don’t understand it. Seems to me, a lot of us have a two-bucket strategy by default. If we have a process where we set aside the coming twelve months’ expected expenditures in cash or equivalents, that’s bucket one. If we then rebalance the remainder, that’s bucket two. Maybe that’s an argument for tolerance rebalancing bands.

[@GiantBlue1963]

Isn;t the bucket strategy just an enhanced cash position to try to soften sequence of returns risk? Everything else is just a version of withdrawal strategies that you also deal with in any system.

[@jack91522]

It’s actually pretty easy with the bucket strategy . Understand what your needs are then allocate 5 years to cash and 5 years to bonds. Ignore stock to bond percentages. Buy stocks in a recession and sell at peaks. Trying to maintain a percentage will drive you nuts. If you can live 10yrs without touching your stock you should be good. This requires a healthy net worth not for the fire folks.

[@paulb9156]

The old double-down when markets are down. I’d love to buy more when stocks are down. So I’m sitting and waiting. Still 8-13 yrs out from retirement.

[@pkpuk846]

If most retirement is 30 years, how about a 10 year period certain SPIA as your bond/cash bucket

[@markb1697]

That can work well for those who are Safety First oriented - enough to cover your base expenses for life. Others might feel too stifled by this approach. Different strokes for different folks.

[@mechthildhaeussler5736]

I had come to the same conclusion - it's just too complicated to define beforehand a rule based and "un-emotional" approach to refilling your different buckets. With a fixed percentage portfolio, I am still having a look at the number of years I have in non-volatile and liquid assets. Up to now, with my portfolio still growing after 3 years in retirement, everything is fine. However, things may look different over time with a decreasing portfolio. Will I still have the guts to strictly follow a fixed percentage, when this means having only a couple of years in "safe" assets during a falling stock market at the age of 85?

[@jvini68]

Hopefully between SS, reduced spending and your increased portfolio value from when you retired, it won't be a concern.

[@rusilver2]

Thanks Rob! now if the market tanks the rest of the year we'll have you to thank! 😂

[@fishynut8252]

Just goes to show that simple is sometimes the best strategy as in this case.

[@davidk6498]

I think the Bucket strategy is easier to ignore it all depends on your portfolio total value if you have reach critical mass say you could live on 120,000 a year and you and have 10 million in the bank I don't like the bucket strategy at all just my thoughts

[@edorofish]

Glad I don't need to have buckets or worry about my investments and rebalancing. A pension is a wonderful thing to have.

[@tompGA]

My bucket strategy may be overly simplistic and not correct but here goes. Bucket 1 is Cash, T-Bill"s, CD's, and Bond funds that are in Brokerage and IRA. Brokerage has ~2 years cash and some Bucket 3 stocks (ETF's). Since market is up right now, I may sell some stocks to fund Bucket 1 cash without the need for an IRA dip. I'm staying under the CG limit. Bucket 2 is all in IRA and all in Wellesley fund and could fund years 3-8. Bucket 3 is Total Market ETF in IRA and some in Brokerage and would not need to touch for 10 years if market tanked. Overall I'm 65/30/5. Next year, if market stays up, I'll fund spending from Bucket 3 stocks to get that closer to 60% of total. Not sure if this makes sense but it seems to work for me.

[@henrikf9015]

Just make sure your investments are substantial enough to generate consistent income, even during periods of market downturn.

[@jimknarr]

Why does retirement investing have to be so complicated? It sure makes it easy for financial services to siphon off some of our gains to "help" us.

[@jps0117]

I think I have a new rule: Disregard any strategy that involves "buckets".

[@angelaharkey3026]

That’s a lot of years of cash .. might be hard to start off with.

[@Paxevo]

Only weak minded investors need a behavioral economic fallacy like the Mental Accounting error of the “bucket strategy” Once I drill down on someone’s bucket strategy I always find evidence of market timing. Buckets are a figment of an investors imagination. There is no suck thing.

[@johnnyfive1412]

I have a more simpler 15 bucket strategy..... Let me explain in detail.... :)

[@scottneusen9601]

If bucket 7 isn't a bucket of fried chicken then I'm out.

[@Omar-et7sb]

This is the typical case of finance nerds - like us - overcomplicating a solved problem. The bucket strategy is a waste of sleep time.

[@LJ-jq8og]

ROB👋: New SUB here... QUESTION ⁉ You said on an old podcast I just listened too: You "wouldn't feel comfortable....having all your money in one entity..." CAN you please elaborate ⁉ Am in charge of 8 figures for relatives, and have ALL of it at one major well-known firm... AM I stupid to do that ⁉ In old days had many accounts and paperwork and mail burned me out 🔥 ANYONE PLEASE ALSO CHIME IN... 🙏

[@dawsonspath2257]

8 figures, would you want to be involved in this closely? I personally enjoy managing my assets (very low 7 figure), I think its fun - if you also do, then you should ask some questions of the firm. Otherwise, set it and forget it, 8 figures is way more money than the average folks will ever need. The vast majority of folks have 6 figures to low 7's and those folks are the ones that have to watch closely so as not to go broke. Just my 2 cents.

[@LJ-jq8og]

@@dawsonspath2257 Thank you ! What I am worried about is IF Rob thinks we should be distributing our money amongst several financial entities ? For some security reason ? I LOVE having all the funds in one place so there is a fraction of the 1099 forms, etc...

[@GoKU-xx2vg]

If there is fraud at that one entity then you are screwed.

[@LJ-jq8og]

@@GoKU-xx2vg I presume you are 💯 correct and that is "why" ROB said that ealrier I am guessing too.... I caught FIDELITY pulling some sheeeet one day and I will NEVER forgive them so that rules them out... AM hoping ROB can further address this for me if there is anything else he sees as a downside beyond your "good point..."

[@sbkpilot1]

the bucket strategy is overly complicated and that in itself is a red flag. It's best to keep it simple, choose the right asset allocation for your risk, choose a sensible withdrawal rate for your retirement timeline and make sure your budget has a fair discretionary component so that you can be flexible if hard times hit - if you follow these three rules you will be totally fine.

[@genglandoh]

I am 68 retired 4 months will take SS at 70 I think you are overthinking the bucket system My buckets are Bucket1 cash needed for the next 3 years that will protect me from a 3 year down market. The balance will change as your spending needs change. For example when you start getting SS the amount needed will drop. Or when you move from the go-go years to the slow-go years. Only spend this money in a bear market not during a bull market. Bucket2 Income/dividend stock ETFs to protect me from a longer bear market. The amount in this bucket is enough stocks where the dividends plus SS will cover our spending. The balance will change as the investments and dividends change. Only spend the dividends and only after we are in an extended bear market. Bucket3 Growth ETFs Long term growth Not a fixed balance basically what is left over after bucket1 and bucket2 are full. Spend from this bucket when we are not in a bear market.

[@dawsonspath2257]

Appreciate this - I'm not 68 yet, but this is what I am modeling based on my needs, my assets and historical time-frames going back to early 1900's - in every 25 year span (how long I expect to be alive in retirement) I'm good to go using this strategy. Nice post!

[@BPal75]

I guess I’m with Rob in that I truly don’t understand this system? Why not just withdraw 4% a year into cash “bucket” and rebalance the rest to whatever allocation you are comfortable with? That just seems easier, and you don’t have to worry about bear markets because the 4% is safe in the worst sequence of returns in history. If it turns out you don’t need the full 4%, you could always just take less the following year.

[@GoKU-xx2vg]

That is fine. But your returns will be less long term.

[@genglandoh]

The purpose of the bucket strategy is to help you handle a down market. Think of it as an insurance policy. It will cost you some returns but it will protect you from a down market and from yourself doing something stupid. For example Assume you have $1,000,000 and there is no inflation just to make this example simple. You invest it in the market and decide to withdrawal using the 4% rule. Year 1 you withdrawal $40,000 assume the stock price is $100 per share so you sold 400 shares to get the $40,000 Year 2 the stock market drops 10% your investments are how worth $860K ($1,000,000 - $40,000 - 100,000) The stock price per share is not $90 not $100 so you will need to sell 444 shares. Year 3 the stock market drops another 20% your balance is $828 and the stock price is $72 You will need to sell 555 shares to get to $40,000 Year 4 the stock market drops another 10% your balance is now $709K and the stock price is $64.8 You will need to sell 617 shares to get $40,000 The question is how would you handle this situation. The market has dropped 4 years in a row, your investments have dropped $300k Would you stick to the 4% rule and hope the market comes back. Would you sell your investment to stop the bleeding and lock in the $300K lose. How well will you sleep at night. In my case I would be worried about the future so to help me sleep at night I use the bucket system. I do not mind making a little less in returns but I fell I have won the retirement game so I am not going to chase returns.

[@BPal75]

@@genglandohthanks for the thoughtful response. I’m not at retirement yet so it’s easy for me to say what I would do when it’s not my reality. I’d like to think I’d “trust the system” and keep at the 4%, but I get what you’re saying if your method helps you sleep better at night then it’s the right approach for you.

[@EJJ-EvArms]

@robberger The tax bracket bucket, the irmaa bucket, and the osamacare bucket are a lot more impactful than the other "buckets". Fill these buckets up with taxable, in whatever form that takes, and use the non-taxable for the rest. Rebalance (overall) at year's end, keeping in mind asset & location allocations, convert as needed, solve for x (tax) in terms of Y Z Q etc, and you'll be better off long-term than any theoretical bucket, because taxes are real world each year, and predictable each year.

[@Dave-FIREd]

For me, the bucket strategy is more of a mental construct, or mental "compartmentalization" as others have mentioned. I like to have a minimum of 5yrs living expenses, plus a small cushion for unexpected stuff, in cash/safe/stable investments. Of that "bucket", I prefer that 2yrs of it is literally in cash/MMF, the rest in bonds/CDs/T-bills/etc. Determining my 5yr+cushion number allows me to back-in to the calculation for determining my overall asset allocation. In other words if my 5yr cash/safe bucket represents 20% of my portfolio, then I'm comfortable at 80/20 overall.

[@suzannortega6671]

So many scammers giving names of “advisors”in the comments .

[@joelcorley3478]

People that are using bucket strategies are trying to time the market. It's stupid and doesn't accomplish what they think it does. I don't do it.

[@markb1697]

Not necessarily. There are lots of different ways to manage buckets beyond how Rob described it. The approach simply moves anticipated spending into safe money so that it can be spent in a down market. Determining when to replenish the buckets might be a challenge of when, but to me it gives more optionality than blindly selling 4% of the portfolio every month.

[@joelcorley3478]

​@@markb1697- You are being handwavvy. Every attempt I've ever seen to define or defend a bucket strategy has been handwavvy. No one has ever shown me a rigorous back-test of a bucket strategy that actually reduces risk. In fact the only rigorous backtests I've seen have been presented by opponents of bucket strategies. I wonder why that is? Personally I think it's obvious why bucket strategies don't do what is intended. And all the hand waiving boils down to an excuse to time the market - something we know doesn't work more often than not.

[@Fred2-123]

The reason he is having trouble doing the bucket strategy is because it DOES NOT WORK. It does not do what the proponents claim it does. It only seems to work when described with handwaving. When you come down to the concrete steps to take, it makes no sense. Just stick to your chosen asset allocation and when you do your withdrawals, do it so as to move your portfolio toward that AA.

[@markb1697]

I suggest you check out the RISA tool by Dr. Wad Pfau (Retirement Style Awareness Profile). There is not a single right answer - Bucketing (or time segmentation) can work but not for everyone. Others are not comfortable managing a single portfolio and spending while it is dropping during a Bear market.

[@garya2223]

Too complicated!