Buckets in Retirement

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Dandy
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Re: Buckets in Retirement

Post by Dandy »

What if we have the not-so-uncommon-after-big-debt-runup scenario like we had after WW1, after WW2 and after Vietnam: Where you get something like 50% total inflation in 5 years and fixed income stays near zero? (or, during and after Vietnam, not zero but way below inflation)? How do those "safe" products hold up then? Even TIPS will have the big problem of "taxflation" as their ability to keep up with inflation loses some to taxes on those phantom gains?
Safe products would not do well--as would many other allocations used. My "safe" assets are less than 1/3 of my financial assets so 2/3+ has a more traditional allocation -- probably 65/35 with a large allocation to TIPS Fund. Also, no mortgage or other debt and maxed out SS at age 70. I'm not sure you can have an allocation that will do well under any extreme condition. Equities dropped 90% around the Great Depression and took a while (and a war?) to recover. Yet most feel retirees should continue to have a decent allocation to equities.
Call_Me_Op
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Location: Milky Way

Re: Buckets in Retirement

Post by Call_Me_Op »

I find it valuable to think of my investable assets as existing in two buckets - a SAFE bucket and a RISKY bucket. I think this is a valuable dichotomy - if only to mitigate emotional mistakes. The SAFE bucket includes assets that are government guaranteed. This allows me to hold risky assets with high growth potential in the RISKY bucket without worrying whether I will run out of money. This is similar to Bernstein's LMP ideas but I am not trying to match liabilities in any sort of strict way.

My approach is not a traditional bucket strategy because I do allow rebalancing into RISKY assets but only if the SAFE bucket has not dropped below a FLOOR.

I am not yet retired but have my portfolio positioned in such a way that I am prepared should retirement be thrust upon me unexpectedly.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein
Ivygirl
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Re: Buckets in Retirement

Post by Ivygirl »

The trouble with the One Big Bucket O'Money approach to retirement, for me, is that I have never had a big bucket of money. Instead I have had a series of problems that need to be solved.

Can I live indoors, independently, in nice surroundings I choose?
Can I keep the heat, water, and lights on?
Can I afford to go to the doctor?
Can I afford to go to the dentist and buy new eyeglasses?
Can I afford basic groceries, and splurge on the good cheese?
Can I spend on myself sometimes without feeling anxious?
Can I give to good causes, or assist a relative or friend, without worrying it will derange my budget?
And most importantly, when I turn 70: can I stop working entirely after 54 years of it and do whatever I want to do? The greatest luxury of all.

My mother had One Big Bucket O'Money but her life also was made up of decades of beating back problems like the ones I mentioned, for herself and her children. She just could not stop working. She cleaned a big office building until she was 80 and ruined her health and crippled herself. I would likely do the same, because I could never be sure my problems were all solved and the One Big Bucket was Big Enough.

For housing, utilities, health insurance, and basic food: the Paid-Off Mortgage Bucket and the Social Security Bucket.
For dental, hearing, eyesight, and other medical: the Health Savings Account.
For giving, helping, luxuries, home improvements beyond basic maintenance, and a new car every 10 years: the 401(k).
For occasions when I need liquidity, and for if my relatives need to pay my final expenses: a savings account with POD "payable on death"

Looking at the problem in its parts, I can solve it. With One Big Bucket O'Money I could never be sure it was Big Enough.
Call_Me_Op
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Location: Milky Way

Re: Buckets in Retirement

Post by Call_Me_Op »

Ivygirl wrote: Sat Sep 26, 2020 10:00 am The trouble with the One Big Bucket O'Money approach to retirement, for me, is that I have never had a big bucket of money. Instead I have had a series of problems that need to be solved.

Can I live indoors, independently, in nice surroundings I choose?
Can I keep the heat, water, and lights on?
Can I afford to go to the doctor?
Can I afford to go to the dentist and buy new eyeglasses?
Can I afford basic groceries, and splurge on the good cheese?
Can I spend on myself sometimes without feeling anxious?
Can I give to good causes, or assist a relative or friend, without worrying it will derange my budget?
And most importantly, when I turn 70: can I stop working entirely after 54 years of it and do whatever I want to do? The greatest luxury of all.

My mother had One Big Bucket O'Money but her life also was made up of decades of beating back problems like the ones I mentioned, for herself and her children. She just could not stop working. She cleaned a big office building until she was 80 and ruined her health and crippled herself. I would likely do the same, because I could never be sure my problems were all solved and the One Big Bucket was Big Enough.

For housing, utilities, health insurance, and basic food: the Paid-Off Mortgage Bucket and the Social Security Bucket.
For dental, hearing, eyesight, and other medical: the Health Savings Account.
For giving, helping, luxuries, home improvements beyond basic maintenance, and a new car every 10 years: the 401(k).
For occasions when I need liquidity, and for if my relatives need to pay my final expenses: a savings account with POD "payable on death"

Looking at the problem in its parts, I can solve it. With One Big Bucket O'Money I could never be sure it was Big Enough.
Hmmm. Breaking it up into so many parts seems to complicate things. I would rather consider my yearly expenses as X and my portfolio as K*X, and withdraw no more than 1/K of the portfolio every year. A value of K>30 should make the money last forever.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein
Ivygirl
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Joined: Sun Apr 06, 2014 1:36 pm

Re: Buckets in Retirement

Post by Ivygirl »

Call_Me_Op wrote: Sat Sep 26, 2020 10:12 am
Ivygirl wrote: Sat Sep 26, 2020 10:00 am The trouble with the One Big Bucket O'Money approach to retirement, for me, is that I have never had a big bucket of money. Instead I have had a series of problems that need to be solved.

Can I live indoors, independently, in nice surroundings I choose?
Can I keep the heat, water, and lights on?
Can I afford to go to the doctor?
Can I afford to go to the dentist and buy new eyeglasses?
Can I afford basic groceries, and splurge on the good cheese?
Can I spend on myself sometimes without feeling anxious?
Can I give to good causes, or assist a relative or friend, without worrying it will derange my budget?
And most importantly, when I turn 70: can I stop working entirely after 54 years of it and do whatever I want to do? The greatest luxury of all.

My mother had One Big Bucket O'Money but her life also was made up of decades of beating back problems like the ones I mentioned, for herself and her children. She just could not stop working. She cleaned a big office building until she was 80 and ruined her health and crippled herself. I would likely do the same, because I could never be sure my problems were all solved and the One Big Bucket was Big Enough.

For housing, utilities, health insurance, and basic food: the Paid-Off Mortgage Bucket and the Social Security Bucket.
For dental, hearing, eyesight, and other medical: the Health Savings Account.
For giving, helping, luxuries, home improvements beyond basic maintenance, and a new car every 10 years: the 401(k).
For occasions when I need liquidity, and for if my relatives need to pay my final expenses: a savings account with POD "payable on death"

Looking at the problem in its parts, I can solve it. With One Big Bucket O'Money I could never be sure it was Big Enough.
Hmmm. Breaking it up into so many parts seems to complicate things. I would rather consider my yearly expenses as X and my portfolio as K*X, and withdraw no more than 1/K of the portfolio every year. A value of K>30 should make the money last forever.
I have no idea what K>30 means and I doubt very many other people do either. :P

Lots of people get in trouble when they retire because, like me, they have never had One Big Bucket O'Money before. They have no experience with managing it. We do, however, have decades of experience with solving practical problems with money. I'll stick to what I know.

If my sister gets in a jam and needs help, how much can I afford to help her? I know I can't take from the Paid-Off Mortgage Bucket, the Social Security Bucket, or the Health Savings Account bucket, because that money is needed elsewhere. I can, however, help her from the Savings Account Bucket or the 401(k) bucket.
BogleDan
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Re: Buckets in Retirement

Post by BogleDan »

jjunk wrote: Thu Sep 24, 2020 3:23 pm I'm not retired yet but am planning to in the next 2-5yrs. We're in the process of building a cash "bucket" mostly because we plan to use the ACA for insurance and it is gated on MAGI. Having a few years of expenses in cash allows us to better control MAGI, staves off a portion of sequence risk and also will help us sleep at night as we enter the next phase of life.

I understand why others call this mental accounting but for myself, its actually a tactical thing to control my MAGI first and foremost. It just happens to have a few other benefits as well.
When you say the ACA is "gated" based on MAGI, do you mean simply that you lose some subsidies? I think you would still have access to all the plans. I would run the numbers to make sure the monthly difference in premium cost is really worth it to you to have such a large cash position. I understand you say "to help us sleep at night", and I'm not trying to discount that. But sometimes running the numbers helps me sleep at night. For instance, it might be only a $200 difference in monthly premium if you get your MAGI low enough. Is $2400/yr really worth changing your ideal asset allocation for?
Broken Man 1999
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Re: Buckets in Retirement

Post by Broken Man 1999 »

Well, I have always kept all the dollars in our "one big bucket" we call our retirement portfolio in total darkness. None of them have any idea when they will be called and cast out of the retirement portfolio.

I purposefully do this to keep morale high. Think if you were a dollar in the "required spending" bucket, you would know your time hanging out with the other dollars would be shorter than the dollars hanging out in the "new car bucket."

And, on surface it seems by sorting dollars by buckets some dollars will be valued higher than others. That reeks of discrimination.

Seriously, dollars are fungible. Slicing them 40 ways to Sunday won't give one a dollar more to spend.

It seems strange that so many desire their portfolios to be very simple, yet make spending the portfolio dollars so complex.

It is incomprehensible to me how a retire who has managed their money for decades suddenly cannot manage a retirement budget without complexity.

Still, carry on! :beer

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven then I shall not go. " -Mark Twain
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jjunk
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Re: Buckets in Retirement

Post by jjunk »

BogleDan wrote: Sat Sep 26, 2020 10:38 am
jjunk wrote: Thu Sep 24, 2020 3:23 pm I'm not retired yet but am planning to in the next 2-5yrs. We're in the process of building a cash "bucket" mostly because we plan to use the ACA for insurance and it is gated on MAGI. Having a few years of expenses in cash allows us to better control MAGI, staves off a portion of sequence risk and also will help us sleep at night as we enter the next phase of life.

I understand why others call this mental accounting but for myself, its actually a tactical thing to control my MAGI first and foremost. It just happens to have a few other benefits as well.
When you say the ACA is "gated" based on MAGI, do you mean simply that you lose some subsidies? I think you would still have access to all the plans. I would run the numbers to make sure the monthly difference in premium cost is really worth it to you to have such a large cash position. I understand you say "to help us sleep at night", and I'm not trying to discount that. But sometimes running the numbers helps me sleep at night. For instance, it might be only a $200 difference in monthly premium if you get your MAGI low enough. Is $2400/yr really worth changing your ideal asset allocation for?
You're correct, I am using gated to speak to the subsidies. We've tracked the ACA rates for our area since its inception, mostly as a project to understand how the various exchanges/plans change over time. My wife is very health and rarely sees a doctor, I'm not as lucky and will definitely use health care once I leave the workforce. So properly anticipating costs is a top priority for our retirement planning.

In the research I've done to this point, the costs are fairly substantial once you go over the subsidy cliff. Since we'll be living in a VHCOL area and will likely need a high "income" in retirement, I'm effectively trying to play a MAGI game where between our dividends and withdrawals it allows us to avoid the cliff as easily as possible. Having a substantial cash position is the easiest means I've found to do that. I guess I could throw it all into my intermediate bond fund in taxable and pull from there if I needed to, but that has some risk associated with it if rates rise rapidly at the same time I need money for my expenses. And, as I mentioned, cash does provide additional benefits of helping sleep at night and reducing sequence of returns risk. I'm open to someone tell me I'm overthinking this though, so if you have an opinion as to a better path, I'd love to hear it.

When I look at our portfolio today, we're effectively fine (read: FI) mathematically. I could likely retire and be just fine but I have an irrational fear that 'this time is different' and that the country is facing headwinds it hasnt faced before. That will keep me working for the next few years at minimum, and likely putting more cash away. I guess the other upside is that if my fears are realized, I'd have a decent amount of dry powder to reinvest if I wanted to go that way. Of course, that negates the entire point of wanting the cash in the first place :oops:
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2pedals
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Re: Buckets in Retirement

Post by 2pedals »

We can learn a lot from reading sheepdog's post that started in Oct, 2008.

I believe in retirement many people can feel more vulnerable to prolonged market drops, loss of income sources from employment and health care issues. Using LMP/bucket approach for at least some liabilities helps reduce some of that stress.

sheepdog's post:
viewtopic.php?f=10&t=25126
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ruralavalon
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Re: Buckets in Retirement

Post by ruralavalon »

2pedals wrote: Sat Sep 26, 2020 11:27 am We can learn a lot from reading sheepdog's post that started in Oct, 2008.

I believe in retirement many people can feel more vulnerable to prolonged market drops, loss of income sources from employment and health care issues. Using LMP/bucket approach for at least some liabilities helps reduce some of that stress.

sheepdog's post:
viewtopic.php?f=10&t=25126
We both have major health issues. I certainly would have felt more vulnerable to prolonged market drops in early retirement. Now retired almost 10 years, it does not bother me to see a drop of several percentage points in as single day, almost one years worth of spending. It feels routine by now.

We have a 50/50 asset allocation, with no cash allocation, just a couple months of net expenses in our joint checking account. It's just one big "bucket" for us. The bond allocation (all intermediate-term bond fund) is enough to cover about 15 years worth of normal retirement spending net of Social Security, so that is sort of like Liability Matching.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
bigskyguy
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Re: Buckets in Retirement

Post by bigskyguy »

WoodSpinner wrote: Thu Sep 24, 2020 9:08 pm OP,

I am using a LMP/buckets approach and find it pretty easy to manage. The key from my experience is to have a model of your Cashflow needs through retirement. Another plus is to have sufficient assets and income streams to support retirement with plenty of leeway. In my case, the LMP is about 1/3 of the entire portfolio.

Here is a quick overview of how I manage things. In my case, I need to fund the Cashflow for the period from now till SS begins. After that, I should be able to manage the Cashflow from SS and Pensions.

I overlay an overall target AA (60/40) in my case over the entire portfolio. The LMP portion is always fully funded. Rebalancing from Equities to Bonds only occurs within the Growth Portfolio. In a very bad downturn, this will morph the Growth Portfolio to being solely equities since the Intermediate Treasuries in that portion will be sold for rebalancing.

This assures me that I will always have 10 years of expenses in Safe Assets which should be plenty of stability. It also means my AA may dip below 60% equities since there are no other bond funds available for rebalancing.

I like this approach since it gives me some confidence that I will have funds for my Retirement while still owning equities for long term growth, unexpected expenses and as an inflation hedge. It’s a structure that I can understand and explain. The LMP is emptied (or increased) on a yearly cycle (Along with any Rebalancing) based on my expected expenses and income projections.


Image

WoodSpinner
We have taken a similar tact, although our portion that is LMP committed is higher (approx 60% of our portfolio). No pension, I'm on SS (started at age 70) and spouse will start this year at age 62. SS will cover 45% of our regular expenses (we are quite generous as to what we consider "regular expenses").

Buckets #1 (LMP)
Our LMP is in zero coupon treasuries (2020-2024) and TIPS (2025-39)purchased prior to 2020, so real returns are not negative. 2040 and beyond will be covered is my spouses IRA (60/40 Stock/TIPS), which is intended for a future annuity purchase (60/40 Stock/TIPS). Total is 60% of our investable assets.

Bucket #2 (emergency fund)
5% of our portfolio (Gold/Cash. - literally).

Bucket #3 (risk portfolio)
35% of our portfolio is presently in cash (25% - my IRA) and 3% real return I-bonds (10%), given the extreme valuations of equities as well as fixed income. This is the one place where I am willing to market time (I know, heresy). I am not averse to considering equity and fixed income valuations, especially when they are at the extremes we now see.

My approach to retirement investing is heavily influenced by William Bernstein (LMP), Larry Kotlikoff, and Warren Buffet (valuations do indeed matter).
texasdiver
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Re: Buckets in Retirement

Post by texasdiver »

Ivygirl wrote: Sat Sep 26, 2020 10:00 am The trouble with the One Big Bucket O'Money approach to retirement, for me, is that I have never had a big bucket of money. Instead I have had a series of problems that need to be solved.

Can I live indoors, independently, in nice surroundings I choose?
Can I keep the heat, water, and lights on?
Can I afford to go to the doctor?
Can I afford to go to the dentist and buy new eyeglasses?
Can I afford basic groceries, and splurge on the good cheese?
Can I spend on myself sometimes without feeling anxious?
Can I give to good causes, or assist a relative or friend, without worrying it will derange my budget?
And most importantly, when I turn 70: can I stop working entirely after 54 years of it and do whatever I want to do? The greatest luxury of all.

My mother had One Big Bucket O'Money but her life also was made up of decades of beating back problems like the ones I mentioned, for herself and her children. She just could not stop working. She cleaned a big office building until she was 80 and ruined her health and crippled herself. I would likely do the same, because I could never be sure my problems were all solved and the One Big Bucket was Big Enough.

For housing, utilities, health insurance, and basic food: the Paid-Off Mortgage Bucket and the Social Security Bucket.
For dental, hearing, eyesight, and other medical: the Health Savings Account.
For giving, helping, luxuries, home improvements beyond basic maintenance, and a new car every 10 years: the 401(k).
For occasions when I need liquidity, and for if my relatives need to pay my final expenses: a savings account with POD "payable on death"

Looking at the problem in its parts, I can solve it. With One Big Bucket O'Money I could never be sure it was Big Enough.
What do you do for your pre-retirement adult life from age 18-65?

Do you hold down separate jobs to pay for each separate expense like food, mortgage, car, health care, etc? So that each expense comes out of a separate "bucket"?

Or do you manage to to live your pre-retirement life with one bucket...your salary?
Ivygirl
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Re: Buckets in Retirement

Post by Ivygirl »

texasdiver wrote: Sat Sep 26, 2020 1:06 pm
Ivygirl wrote: Sat Sep 26, 2020 10:00 am The trouble with the One Big Bucket O'Money approach to retirement, for me, is that I have never had a big bucket of money. Instead I have had a series of problems that need to be solved.

Can I live indoors, independently, in nice surroundings I choose?
Can I keep the heat, water, and lights on?
Can I afford to go to the doctor?
Can I afford to go to the dentist and buy new eyeglasses?
Can I afford basic groceries, and splurge on the good cheese?
Can I spend on myself sometimes without feeling anxious?
Can I give to good causes, or assist a relative or friend, without worrying it will derange my budget?
And most importantly, when I turn 70: can I stop working entirely after 54 years of it and do whatever I want to do? The greatest luxury of all.

My mother had One Big Bucket O'Money but her life also was made up of decades of beating back problems like the ones I mentioned, for herself and her children. She just could not stop working. She cleaned a big office building until she was 80 and ruined her health and crippled herself. I would likely do the same, because I could never be sure my problems were all solved and the One Big Bucket was Big Enough.

For housing, utilities, health insurance, and basic food: the Paid-Off Mortgage Bucket and the Social Security Bucket.
For dental, hearing, eyesight, and other medical: the Health Savings Account.
For giving, helping, luxuries, home improvements beyond basic maintenance, and a new car every 10 years: the 401(k).
For occasions when I need liquidity, and for if my relatives need to pay my final expenses: a savings account with POD "payable on death"

Looking at the problem in its parts, I can solve it. With One Big Bucket O'Money I could never be sure it was Big Enough.
What do you do for your pre-retirement adult life from age 18-65?

Do you hold down separate jobs to pay for each separate expense like food, mortgage, car, health care, etc? So that each expense comes out of a separate "bucket"?

Or do you manage to to live your pre-retirement life with one bucket...your salary?
I don't manage my pre-retirement life by my salary, I manage it by a plan.

I used to manage by salary; I believe that is called paycheck-to-paycheck. I can't recommend it. Then I made a plan and started funding the actual things I needed instead. Much better. I made sinking funds for lumpy expenses like insurance payments and new tires and so on. I got a month ahead on expenses. I thought about what I wanted and sacrificed the lesser things.

I intend to manage my retirement life with a plan as well, not a "salary" I pay myself.
Broken Man 1999
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Re: Buckets in Retirement

Post by Broken Man 1999 »

Ivygirl wrote: Sat Sep 26, 2020 3:21 pm
texasdiver wrote: Sat Sep 26, 2020 1:06 pm
Ivygirl wrote: Sat Sep 26, 2020 10:00 am The trouble with the One Big Bucket O'Money approach to retirement, for me, is that I have never had a big bucket of money. Instead I have had a series of problems that need to be solved.

Can I live indoors, independently, in nice surroundings I choose?
Can I keep the heat, water, and lights on?
Can I afford to go to the doctor?
Can I afford to go to the dentist and buy new eyeglasses?
Can I afford basic groceries, and splurge on the good cheese?
Can I spend on myself sometimes without feeling anxious?
Can I give to good causes, or assist a relative or friend, without worrying it will derange my budget?
And most importantly, when I turn 70: can I stop working entirely after 54 years of it and do whatever I want to do? The greatest luxury of all.

My mother had One Big Bucket O'Money but her life also was made up of decades of beating back problems like the ones I mentioned, for herself and her children. She just could not stop working. She cleaned a big office building until she was 80 and ruined her health and crippled herself. I would likely do the same, because I could never be sure my problems were all solved and the One Big Bucket was Big Enough.

For housing, utilities, health insurance, and basic food: the Paid-Off Mortgage Bucket and the Social Security Bucket.
For dental, hearing, eyesight, and other medical: the Health Savings Account.
For giving, helping, luxuries, home improvements beyond basic maintenance, and a new car every 10 years: the 401(k).
For occasions when I need liquidity, and for if my relatives need to pay my final expenses: a savings account with POD "payable on death"

Looking at the problem in its parts, I can solve it. With One Big Bucket O'Money I could never be sure it was Big Enough.
What do you do for your pre-retirement adult life from age 18-65?

Do you hold down separate jobs to pay for each separate expense like food, mortgage, car, health care, etc? So that each expense comes out of a separate "bucket"?

Or do you manage to to live your pre-retirement life with one bucket...your salary?
I don't manage my pre-retirement life by my salary, I manage it by a plan.

I used to manage by salary; I believe that is called paycheck-to-paycheck. I can't recommend it. Then I made a plan and started funding the actual things I needed instead. Much better. I made sinking funds for lumpy expenses like insurance payments and new tires and so on. I got a month ahead on expenses. I thought about what I wanted and sacrificed the lesser things.

I intend to manage my retirement life with a plan as well, not a "salary" I pay myself.
DW and I lived paycheck to paycheck for most of our careers, in fact until I became disabled. Our paychecks were set up to put enough money to cover our bills in our respective checking accounts, our 401k contributions were already removed, as was our mortgage. So, what ever we actually received from our paychecks could be spent with no negative ramifications.

In retirement it is even easier, as we know what our bills will run and the only dollars available to pay them are from our SS benefits, and what is necessary to distribute from our TIRAs. And, we only have one TIRA account each to remove the dollars from. DW's bills are very regular, so her TIRA distributions are automated. I pay the bulk of the expenses, and my distributions are lumpy, so I can't automate the distributions.

Easy peasy.

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven then I shall not go. " -Mark Twain
CoAndy
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Re: Buckets in Retirement

Post by CoAndy »

I guess I sort of do. My 401(k) plan, which I plan on tapping later in life, is more aggressively invested than my 457 plan, which I plan to tap sooner. 401(k) is 100% invested in Vanguard 2035. 457 is a 50-50 AA consisting of :
Fidelity Total Market
Fidelity Total International
T. Rowe Price Growth Stock
Fidelity Total US Bond Index
Treasury Money Market

So, cash savings and my pension will get me through the first 3 years of retirement. Pension and 457 the next 5-7 years, and pension, SS, and 401(k) will take care of the remainder.
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2pedals
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Re: Buckets in Retirement

Post by 2pedals »

ruralavalon wrote: Sat Sep 26, 2020 11:43 am
2pedals wrote: Sat Sep 26, 2020 11:27 am We can learn a lot from reading sheepdog's post that started in Oct, 2008.

I believe in retirement many people can feel more vulnerable to prolonged market drops, loss of income sources from employment and health care issues. Using LMP/bucket approach for at least some liabilities helps reduce some of that stress.

sheepdog's post:
viewtopic.php?f=10&t=25126
We both have major health issues. I certainly would have felt more vulnerable to prolonged market drops in early retirement. Now retired almost 10 years, it does not bother me to see a drop of several percentage points in as single day, almost one years worth of spending. It feels routine by now.

We have a 50/50 asset allocation, with no cash allocation, just a couple months of net expenses in our joint checking account. It's just one big "bucket" for us. The bond allocation (all intermediate-term bond fund) is enough to cover about 15 years worth of normal retirement spending net of Social Security, so that is sort of like Liability Matching.
I am sorry you both are having major health issues.

We (61 yo and 59 yo) are in early retirement almost 2 years. I believe that understanding our expenses is critical and we are still adjusting to the "new life thirst". I strongly believe our income spigot stream (pension and future SS, RMDs) is large enough and will satisfy our income thirst so we don't feel vulnerable to market gyrations now either. For some though if the spigot stream slows down and/or they get thirsty, a bucket can provide immediate aid in replenishing the thirst. Regardless how one provides for satisfying the thirst, knowing that you are covered and won't die of thirst helps.
Wrench
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Re: Buckets in Retirement

Post by Wrench »

texasdiver wrote: Sat Sep 26, 2020 1:06 pm
Ivygirl wrote: Sat Sep 26, 2020 10:00 am The trouble with the One Big Bucket O'Money approach to retirement, for me, is that I have never had a big bucket of money. Instead I have had a series of problems that need to be solved.

Can I live indoors, independently, in nice surroundings I choose?
Can I keep the heat, water, and lights on?
Can I afford to go to the doctor?
Can I afford to go to the dentist and buy new eyeglasses?
Can I afford basic groceries, and splurge on the good cheese?
Can I spend on myself sometimes without feeling anxious?
Can I give to good causes, or assist a relative or friend, without worrying it will derange my budget?
And most importantly, when I turn 70: can I stop working entirely after 54 years of it and do whatever I want to do? The greatest luxury of all.

My mother had One Big Bucket O'Money but her life also was made up of decades of beating back problems like the ones I mentioned, for herself and her children. She just could not stop working. She cleaned a big office building until she was 80 and ruined her health and crippled herself. I would likely do the same, because I could never be sure my problems were all solved and the One Big Bucket was Big Enough.

For housing, utilities, health insurance, and basic food: the Paid-Off Mortgage Bucket and the Social Security Bucket.
For dental, hearing, eyesight, and other medical: the Health Savings Account.
For giving, helping, luxuries, home improvements beyond basic maintenance, and a new car every 10 years: the 401(k).
For occasions when I need liquidity, and for if my relatives need to pay my final expenses: a savings account with POD "payable on death"

Looking at the problem in its parts, I can solve it. With One Big Bucket O'Money I could never be sure it was Big Enough.
What do you do for your pre-retirement adult life from age 18-65?

Do you hold down separate jobs to pay for each separate expense like food, mortgage, car, health care, etc? So that each expense comes out of a separate "bucket"?

Or do you manage to to live your pre-retirement life with one bucket...your salary?
Actually all of us live by buckets while we are working. There is the social security bucket that is automatically withheld without choice from our pay. And of course Medicare, state, federal and local tax buckets, the health care reimbursement or HSA bucket, the child care reimbursement bucket, the tIRA or 401K bucket, the Roth IRA bucket, etc. etc. If anything, pre-retirement is way more buckets than I ever anticipate in my retirement years! So yes, I totally live by buckets before retirement. I don't always think of it that way, but that's one way to see it.
Jogger
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Re: Buckets in Retirement

Post by Jogger »

We're 2-3 years from retirement, 59/60 yo. I've got a 2,3,4 year CD ladder started, and have some in a short term bond fund (FNSOX). I guess this is my first bucket. The rest in total bond a stocks. Overall 79/31. I will get a 45k pension, no COLA, as well, which should help earlier in retirement but erode due to inflation.

After SS, when were about 75?, thinking of buying a SPIA. Might create a bucket for that and move it from Fidelity to Vanguard to separate it. I guess this would be tIRA. Maybe a target date fund so I don't have to touch it. Also thought of another bucket at VG for LTC/Inheritance, maybe all Roth, maybe all equities since not sure if/when need. This may help me sleep better when older. I plan to keep the same overall AA to keep things simpler.
printer86
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Re: Buckets in Retirement

Post by printer86 »

I’m retiring this week @ 56yo. I’m going with the two bucket approach.

Bucket one consists of our taxable accounts. It is intended to get us to SS FRA in 2031. Taxable accounts are divided evenly between stocks and laddered CDs.

I plan to move 6 months of expenses to our checking/savings accounts twice per year. I will alternate withdrawals between CDs and stocks in order to manage our ACA premiums as long as said premiums are available.

Bucket two contains our tax deferred and tax free accounts. These accounts are primarily invested in the Wellington Fund (65/35) and I hope to keep them there forever. My plan is to draw from Wellington and SS starting in 2031.

That’s it.
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Re: Buckets in Retirement

Post by Call_Me_Op »

Wrench wrote: Sat Sep 26, 2020 6:40 pm
texasdiver wrote: Sat Sep 26, 2020 1:06 pm
Ivygirl wrote: Sat Sep 26, 2020 10:00 am The trouble with the One Big Bucket O'Money approach to retirement, for me, is that I have never had a big bucket of money. Instead I have had a series of problems that need to be solved.

Can I live indoors, independently, in nice surroundings I choose?
Can I keep the heat, water, and lights on?
Can I afford to go to the doctor?
Can I afford to go to the dentist and buy new eyeglasses?
Can I afford basic groceries, and splurge on the good cheese?
Can I spend on myself sometimes without feeling anxious?
Can I give to good causes, or assist a relative or friend, without worrying it will derange my budget?
And most importantly, when I turn 70: can I stop working entirely after 54 years of it and do whatever I want to do? The greatest luxury of all.

My mother had One Big Bucket O'Money but her life also was made up of decades of beating back problems like the ones I mentioned, for herself and her children. She just could not stop working. She cleaned a big office building until she was 80 and ruined her health and crippled herself. I would likely do the same, because I could never be sure my problems were all solved and the One Big Bucket was Big Enough.

For housing, utilities, health insurance, and basic food: the Paid-Off Mortgage Bucket and the Social Security Bucket.
For dental, hearing, eyesight, and other medical: the Health Savings Account.
For giving, helping, luxuries, home improvements beyond basic maintenance, and a new car every 10 years: the 401(k).
For occasions when I need liquidity, and for if my relatives need to pay my final expenses: a savings account with POD "payable on death"

Looking at the problem in its parts, I can solve it. With One Big Bucket O'Money I could never be sure it was Big Enough.
What do you do for your pre-retirement adult life from age 18-65?

Do you hold down separate jobs to pay for each separate expense like food, mortgage, car, health care, etc? So that each expense comes out of a separate "bucket"?

Or do you manage to to live your pre-retirement life with one bucket...your salary?
Actually all of us live by buckets while we are working. There is the social security bucket that is automatically withheld without choice from our pay. And of course Medicare, state, federal and local tax buckets, the health care reimbursement or HSA bucket, the child care reimbursement bucket, the tIRA or 401K bucket, the Roth IRA bucket, etc. etc. If anything, pre-retirement is way more buckets than I ever anticipate in my retirement years! So yes, I totally live by buckets before retirement. I don't always think of it that way, but that's one way to see it.
I have noticed that some people seem to get worked-up whenever the "bucket strategy" comes up for discussion. As far as I can tell, there is no one bucket strategy and in fact, all investing approaches are forms of a bucket strategy (segregated assets) - just with different rules. So what is the "essence" of the so-called "bucket strategy" that people like to argue against? Is it that there is no rebalancing into stocks, only out of stocks? Is it that it holds 1-2 years in cash? What is a good working definition of the so-called "bucket strategy?"
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein
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Re: Buckets in Retirement

Post by Nowizard »

I have at least one friend who uses is. As with everything complex, there are different ways of approaching the concept, and individual circumstances ultimately determine many of those choices. The title of this site gives you an indication of what responses will predominate here. I suspect you know that Christine Benz on the Morningstar site discusses and supports this approach regularly.

Tim
dbr
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Re: Buckets in Retirement

Post by dbr »

I tend to get worked up when it looks like someone is going through agonies to make something more complicated and stressful than it really needs to be. I would like people to practice good mental health habits rather than the opposite.
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Re: Buckets in Retirement

Post by Broken Man 1999 »

dbr wrote: Sun Sep 27, 2020 8:35 am I tend to get worked up when it looks like someone is going through agonies to make something more complicated and stressful than it really needs to be. I would like people to practice good mental health habits rather than the opposite.
This!

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Re: Buckets in Retirement

Post by Ivygirl »

dbr wrote: Sun Sep 27, 2020 8:35 am I tend to get worked up when it looks like someone is going through agonies to make something more complicated and stressful than it really needs to be. I would like people to practice good mental health habits rather than the opposite.
Rude and presumptuous. A person's determination that buckets are the best way to manage their own retirement has nothing to do with good mental health.
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Re: Buckets in Retirement

Post by dbr »

Ivygirl wrote: Sun Sep 27, 2020 8:48 am
dbr wrote: Sun Sep 27, 2020 8:35 am I tend to get worked up when it looks like someone is going through agonies to make something more complicated and stressful than it really needs to be. I would like people to practice good mental health habits rather than the opposite.
Rude and presumptuous. A person's determination that buckets are the best way to manage their own retirement has nothing to do with good mental health.
In that case you have my apologies.
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Re: Buckets in Retirement

Post by Ivygirl »

dbr wrote: Sun Sep 27, 2020 8:53 am
Ivygirl wrote: Sun Sep 27, 2020 8:48 am
dbr wrote: Sun Sep 27, 2020 8:35 am I tend to get worked up when it looks like someone is going through agonies to make something more complicated and stressful than it really needs to be. I would like people to practice good mental health habits rather than the opposite.
Rude and presumptuous. A person's determination that buckets are the best way to manage their own retirement has nothing to do with good mental health.
In that case you have my apologies.
Okay then no hard feelings. :happy Please keep talking according to your own way of thinking, as I am always looking for a way to simplify and reduce anxiety and complexity, maybe you will spark an idea for me.
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Re: Buckets in Retirement

Post by Ivygirl »

Some of the difference of opinion in how useful a bucket strategy can be might be attributed to how big the final Bucket o'Money will be.

I project my portfolio at retirement - age 70 - will be about $300,000 - my life's savings, if you will. Using the 4% rule I can draw $12,000 from it per year. That's not really worth calling it a "salary."

If I'm going to live indoors, eat, keep the heat on, and so forth, I need a variety of strategies. I need to know exactly how to pay for the things I need, because if I can't, I need to change course right now at age 56. I really do not want to go back to cheap roachy apartments with roommates who are slobs and invite home dangerous men.

If your Big Bucket is much bigger than $300,000, your calculations on the value of what you can pay yourself could be different from mine.
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Re: Buckets in Retirement

Post by Call_Me_Op »

Good point Ivy.

I am still waiting for someone to elucidate the fundamental distinction of a bucket strategy versus other strategies. It seems that everyone separates their investments into categories (mentally or otherwise) that can be called buckets. I think the only real distinguishing factor is how the assets are coordinated between the so-called buckets.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein
dbr
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Re: Buckets in Retirement

Post by dbr »

Call_Me_Op wrote: Sun Sep 27, 2020 11:20 am Good point Ivy.

I am still waiting for someone to elucidate the fundamental distinction of a bucket strategy versus other strategies. It seems that everyone separates their investments into categories (mentally or otherwise) that can be called buckets. I think the only real distinguishing factor is how the assets are coordinated between the so-called buckets.
As best I can tell the practical difference between most buckets strategies and a set and rebalance asset allocation is that with a buckets plan the asset allocation is intentionally varied and timed according to some rules.* That may or may not be a substantive difference. In reality the asset allocations so achieved may be indistinguishable and the difference in results negligible. Simply writing up a spreadsheet and tallying how one's assets break down according to different categories is not a strategy but just information that may or may not be helpful.

A difference that might be of great importance is that the rationale for how one chooses the asset allocation may be quite different between the two. This could be a lengthy discussion, but it comes down in the end to how the investor imagines he can effectively manage the risk of running out of money in retirement. The discussion hinges on whether or not you can show that there is a difference in success between the two.

There are other variations that I would not call buckets. One example is buying a TIPS ladder as a so-called liability matching portfolio. That might be a helpful thing to do, but it is not a bucket because the LMP idea is supposed to exclude actually moving money back and forth from the bucket. More logically the LMP is an income stream and not a portfolio at all. The purest and most sensible of all the LMP buckets would be to exchange the money for an (inflation indexed or not) annuity, but then it really is pushing clear thinking to call such a thing a bucket of investments.

The paragraph just above does suggest that a good alternative idea to buckets of investments for retirement expenses is to have spigots of income for investment expenses. Those spigots are Social Security, pensions, annuities, side businesses, including perhaps real estate, and withdrawals from portfolios. I have a hard time understanding how dividing up that last item into buckets of different kinds of stocks and fixed income is of enough effect to be worth the effort. I do agree that dividing the portfolio investments into buckets may be helpful at bucketing one's worries about one's investments, if it is. There are other routes to managing worry.

*To head off confusion, varying asset allocations according to a condition at a time is not the dreaded market timing. Market timing requires changing asset allocation now on response to a prediction regarding a future condition. Rebalancing, for example, involves moving money among assets due to a current condition but not because one predicts some future condition.

Also, on rebalancing, assuming one uses some practical method, such as 5%/25% bands, there is enough random variation in asset allocation that in practice buckets and rebalancing are not different in actual result.
Last edited by dbr on Sun Sep 27, 2020 11:48 am, edited 1 time in total.
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Re: Buckets in Retirement

Post by Call_Me_Op »

Hi dbr,

I think you are defining the bucket strategy in a somewhat narrow sense. For example, Chrisitne Benz, a big bucket advocate, suggests that money can be moved between buckets. Most descriptions of bucket strategies I have seen suggest refilling bucket 1 from bucket 2 and/or bucket 3. I think it is more rare to allow transfers into the long-term bucket, so this may be the distinguishing factor.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein
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Re: Buckets in Retirement

Post by dbr »

Call_Me_Op wrote: Sun Sep 27, 2020 11:42 am Hi dbr,

I think you are defining the bucket strategy in a somewhat narrow sense. For example, Chrisitne Benz, a big bucket advocate, suggests that money can be moved between buckets. Most descriptions of bucket strategies I have seen suggest refilling bucket 1 from bucket 2 and/or bucket 3. I think it is more rare to allow transfers into the long-term bucket, so this may be the distinguishing factor.
I added some edits above. Right, I think there is an issue here of the strict definition of bucket and of buckets scheme. That is why I mentioned the LMP, which is more general, but in my mind not a bucket, but most definitely a very clear tactic.

Another possibility is buckets but without any real rules. For example, one might say retire with x years expenses in cash, but then not be clear about how much cash one maintains as time goes on, and so on. There is always the interesting comparison that a rebalanced asset allocation with a reasonable allocation to fixed income always has a significant fraction of one's remaining retirement years in fixed income, so one wonders what the difference is.
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Re: Buckets in Retirement

Post by ruralavalon »

Ivygirl wrote: Sat Sep 26, 2020 10:00 am The trouble with the One Big Bucket O'Money approach to retirement, for me, is that I have never had a big bucket of money. Instead I have had a series of problems that need to be solved.

Can I live indoors, independently, in nice surroundings I choose?
Can I keep the heat, water, and lights on?
Can I afford to go to the doctor?
Can I afford to go to the dentist and buy new eyeglasses?
Can I afford basic groceries, and splurge on the good cheese?
Can I spend on myself sometimes without feeling anxious?
Can I give to good causes, or assist a relative or friend, without worrying it will derange my budget?
And most importantly, when I turn 70: can I stop working entirely after 54 years of it and do whatever I want to do? The greatest luxury of all.

My mother had One Big Bucket O'Money but her life also was made up of decades of beating back problems like the ones I mentioned, for herself and her children. She just could not stop working. She cleaned a big office building until she was 80 and ruined her health and crippled herself. I would likely do the same, because I could never be sure my problems were all solved and the One Big Bucket was Big Enough.

For housing, utilities, health insurance, and basic food: the Paid-Off Mortgage Bucket and the Social Security Bucket.
For dental, hearing, eyesight, and other medical: the Health Savings Account.
For giving, helping, luxuries, home improvements beyond basic maintenance, and a new car every 10 years: the 401(k).
For occasions when I need liquidity, and for if my relatives need to pay my final expenses: a savings account with POD "payable on death"

. . . . .
Before retirement everyone has to juggle spending priorities (e.g. food, clothing, shelter, healthcare) based on available income.

After retirement there is no earned income, everything comes out of the combination of Social Security, any pension, and the investments, its all spendable cash in one way or another. After retirement you still juggle spending priorities based on available money.

Different sources of income and different accounts are not different "buckets". Buckets mentally segregate investments based on correlation between risk and time-frame, so there is a different asset allocation for each bucket.
Christine Benz wrote: . . . the Bucket concept is anchored on the basic premise that assets needed to fund near-term living expenses ought to remain in cash, dinky yields and all. Assets that won't be needed for several years or more can be parked in a diversified pool of long-term holdings, with the cash buffer providing the peace of mind to ride out periodic downturns in the long-term portfolio.
Morningstar (2/1/2019), "The Bucket Approach to Retirement Allocation".

Ivygirl wrote: Sat Sep 26, 2020 10:00 am . . . . .
Looking at the problem in its parts, I can solve it. With One Big Bucket O'Money I could never be sure it was Big Enough.
Looking at the big picture (the problem in all its parts), then in my opinion you don't need a separate "bucket" for each expense you may have. You can use a single asset allocation for all of your investing.

In the one big bucket approach you determine your expected retirement spending by studying your current spending over the last several years (so you don't miss expenses that occur on an irregular basis), deduct what will end by retirement (e.g. mortgage payments, college expenses for children, Social Security tax), and add what may increase on retirement (e.g. travel, hobbies, premiums for medical insurance) to determine the annual total of expected retirement spending. Subtract the annual income from Social Security and any pension, to determine the annual amount you may need from your investments.

In my opinion, you need to do this anyway to determine if you have saved enough to retire. If can solve each part of the problem, then you can solve the total.

But as they used to say "different strokes for different folks". It is a matter of personal preference.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
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Re: Buckets in Retirement

Post by Ivygirl »

ruralavalon wrote: Sun Sep 27, 2020 12:52 pm Different sources of income and different accounts are not different "buckets". Buckets mentally segregate investments based on correlation between risk and time-frame, so there is a different asset allocation for each bucket.
Yes, after reading dbr's explanation, I agree my current plan is more of a "spigot" plan than a "bucket" plan.

Or maybe it's a hybrid. In my HSA for example I have $5,000 cash, $3,000 in bonds, and $12,000 in Fidelity Puritan. The idea being I need ready money to pay medical expenses if I have them now, I need safe money in case the medical expenses go over the usual to my out-of-pocket maximum, and I need growth because let's face it, medical expenses don't decrease with age. So that seems like buckets, within a spigot.
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Re: Buckets in Retirement

Post by dbr »

Ivygirl wrote: Sun Sep 27, 2020 9:36 am Some of the difference of opinion in how useful a bucket strategy can be might be attributed to how big the final Bucket o'Money will be.

I project my portfolio at retirement - age 70 - will be about $300,000 - my life's savings, if you will. Using the 4% rule I can draw $12,000 from it per year. That's not really worth calling it a "salary."

If I'm going to live indoors, eat, keep the heat on, and so forth, I need a variety of strategies. I need to know exactly how to pay for the things I need, because if I can't, I need to change course right now at age 56. I really do not want to go back to cheap roachy apartments with roommates who are slobs and invite home dangerous men.

If your Big Bucket is much bigger than $300,000, your calculations on the value of what you can pay yourself could be different from mine.
A problem of not having enough money is not solved by using a buckets strategy to enable you to amass more money or withdraw more money from your assets than can be obtained using other investment strategies. Your concerns are not different from lots of other people.

The specific problem of using $300k to draw more than $12k/year between the ages of 70 and perhaps 100 would be to use the money to buy a single premium immediate annuity. At age 70 assuming financial conditions such as we have today such an annuity would pay out about $19,000/year for your lifetime. That is an illustration of principle because there are the practical problems of that not being inflation indexed and it being unwise to give up all one's income for an annuity.

Another component of retirement planning is Social Security, which is also maximized by waiting till age 70 to start.

To amass more money by age 70 is a pretty direct issue of

1. How good your luck is that investment returns will be good for the next 14 years for investments that can grow significantly, namely stocks. You could also be unlucky and stocks would do badly. The lever on controlling that is asset allocation, whether you account for it in buckets or not.

2. How much you can earn over those years and from that what you can save. Those things are very personal. Everyone has their own story from people I know who live on Social Security and public assistance, to people who live on Social Security and a small pension, to a person I know who went from a $500k portfolio to living on Medicaid in a facility due to the intervention of cocaine, to a person who had an $8 million portfolio and wouldn't let his wife buy a new car but let his sons throw it all away after he died, and so on. It is not reasonable to expect that most people are millionaires or can sit back with $150,000 pensions.

3. How your circumstances change including inheritances, marriage, divorce, etc.

4. Where you live, affecting both what you earn and what you need to spend.

It might be you would be helped by looking at the article on financial planning: viewtopic.php?f=1&t=6211

and for specific advice on your portfolio, the details about your investments: viewtopic.php?f=1&t=6212

Laying everything out for help is up to you and your level of comfort.
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Re: Buckets in Retirement

Post by Ivygirl »

dbr wrote: Sun Sep 27, 2020 2:02 pm
Ivygirl wrote: Sun Sep 27, 2020 9:36 am Some of the difference of opinion in how useful a bucket strategy can be might be attributed to how big the final Bucket o'Money will be.

I project my portfolio at retirement - age 70 - will be about $300,000 - my life's savings, if you will. Using the 4% rule I can draw $12,000 from it per year. That's not really worth calling it a "salary."

If I'm going to live indoors, eat, keep the heat on, and so forth, I need a variety of strategies. I need to know exactly how to pay for the things I need, because if I can't, I need to change course right now at age 56. I really do not want to go back to cheap roachy apartments with roommates who are slobs and invite home dangerous men.

If your Big Bucket is much bigger than $300,000, your calculations on the value of what you can pay yourself could be different from mine.
A problem of not having enough money is not solved by using a buckets strategy to enable you to amass more money or withdraw more money from your assets than can be obtained using other investment strategies. Your concerns are not different from lots of other people.

The specific problem of using $300k to draw more than $12k/year between the ages of 70 and perhaps 100 would be to use the money to buy a single premium immediate annuity. At age 70 assuming financial conditions such as we have today such an annuity would pay out about $19,000/year for your lifetime. That is an illustration of principle because there are the practical problems of that not being inflation indexed and it being unwise to give up all one's income for an annuity.

Another component of retirement planning is Social Security, which is also maximized by waiting till age 70 to start.

To amass more money by age 70 is a pretty direct issue of

1. How good your luck is that investment returns will be good for the next 14 years for investments that can grow significantly, namely stocks. You could also be unlucky and stocks would do badly. The lever on controlling that is asset allocation, whether you account for it in buckets or not.

2. How much you can earn over those years and from that what you can save. Those things are very personal. Everyone has their own story from people I know who live on Social Security and public assistance, to people who live on Social Security and a small pension, to a person I know who went from a $500k portfolio to living on Medicaid in a facility due to the intervention of cocaine, to a person who had an $8 million portfolio and wouldn't let his wife buy a new car but let his sons throw it all away after he died, and so on. It is not reasonable to expect that most people are millionaires or can sit back with $150,000 pensions.

3. How your circumstances change including inheritances, marriage, divorce, etc.

4. Where you live, affecting both what you earn and what you need to spend.

It might be you would be helped by looking at the article on financial planning: viewtopic.php?f=1&t=6211

and for specific advice on your portfolio, the details about your investments: viewtopic.php?f=1&t=6212

Laying everything out for help is up to you and your level of comfort.
Thanks dbr. You're stating the case pretty much the way I had it figured, point by point. Except it's intriguing to hear that an annuity could pay $19,000. I hadn't thought it was that much. Women in my family live a long time in very good health, it would be a dark day for the insurance company if they sold me one. :D
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Re: Buckets in Retirement

Post by Robert20 »

WoodSpinner wrote: Thu Sep 24, 2020 9:08 pm OP,

I am using a LMP/buckets approach and find it pretty easy to manage. The key from my experience is to have a model of your Cashflow needs through retirement. Another plus is to have sufficient assets and income streams to support retirement with plenty of leeway. In my case, the LMP is about 1/3 of the entire portfolio.

Here is a quick overview of how I manage things. In my case, I need to fund the Cashflow for the period from now till SS begins. After that, I should be able to manage the Cashflow from SS and Pensions.

I overlay an overall target AA (60/40) in my case over the entire portfolio. The LMP portion is always fully funded. Rebalancing from Equities to Bonds only occurs within the Growth Portfolio. In a very bad downturn, this will morph the Growth Portfolio to being solely equities since the Intermediate Treasuries in that portion will be sold for rebalancing.

This assures me that I will always have 10 years of expenses in Safe Assets which should be plenty of stability. It also means my AA may dip below 60% equities since there are no other bond funds available for rebalancing.

I like this approach since it gives me some confidence that I will have funds for my Retirement while still owning equities for long term growth, unexpected expenses and as an inflation hedge. It’s a structure that I can understand and explain. The LMP is emptied (or increased) on a yearly cycle (Along with any Rebalancing) based on my expected expenses and income projections.


Image

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why not VGLT, long term treasury?.
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Re: Buckets in Retirement

Post by WoodSpinner »

For the LMP portion, VGIT roughly matches the duration of expected expenses.

An argument for VGLT could be made for the FI portion of the growth portfolio. My thinking was to keep things simple and reduce the ETFs that I own.

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Re: Buckets in Retirement

Post by ruralavalon »

Ivygirl wrote: Sun Sep 27, 2020 9:36 am . . . . .
If I'm going to live indoors, eat, keep the heat on, and so forth, I need a variety of strategies. I need to know exactly how to pay for the things I need, because if I can't, I need to change course right now at age 56. I really do not want to go back to cheap roachy apartments with roommates who are slobs and invite home dangerous men.
. . . . .

The strategy solution is not mentally arranging assets in buckets or income by spigots. Instead the strategy solution is likely increasing contributions to retirement investing, or deferring retirement, or when the time comes a low cost income annuity like a Single Premium Immediate Annuity (SPIA) (www.immediateannuities.com), or a combination of those.
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Re: Buckets in Retirement

Post by Ivygirl »

ruralavalon wrote: Sun Sep 27, 2020 6:53 pm
Ivygirl wrote: Sun Sep 27, 2020 9:36 am . . . . .
If I'm going to live indoors, eat, keep the heat on, and so forth, I need a variety of strategies. I need to know exactly how to pay for the things I need, because if I can't, I need to change course right now at age 56. I really do not want to go back to cheap roachy apartments with roommates who are slobs and invite home dangerous men.
. . . . .

The strategy solution is not mentally arranging assets in buckets or income by spigots. Instead the strategy solution is likely increasing contributions to retirement investing, or deferring retirement, or when the time comes a low cost income annuity like a Single Premium Immediate Annuity (SPIA) (www.immediateannuities.com), or a combination of those.
Thanks, but already doing the best I can in terms of contributing to investments, and not willing to defer retirement past 70. Let the chips fall where they may.

I've done the calculation and Social Security will pay for every necessity if my house is paid off. My investments will pay for everything else.
Old Sage(brush)
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Re: Buckets in Retirement

Post by Old Sage(brush) »

I’m pretty confused by all this at the moment, probably need another cup of coffee. It seems like unless you have 100% of your financial assets invested in a single investment you have some kind of bucket strategy and a lot of the rest of the discussion is semantics. Interesting and helpful to think about nonetheless.
dbr
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Re: Buckets in Retirement

Post by dbr »

Old Sage(brush) wrote: Mon Sep 28, 2020 8:16 am I’m pretty confused by all this at the moment, probably need another cup of coffee. It seems like unless you have 100% of your financial assets invested in a single investment you have some kind of bucket strategy and a lot of the rest of the discussion is semantics. Interesting and helpful to think about nonetheless.
Buckets is not about the fact that you can divide up the assets into different categories. It is an issue of how you decide what are the meaningful categories, how you decide how much to put in each, and what kind of plan, if any, you follow to maintain that distribution.

I do agree that for the most part there is no big difference in the outcome among the different ways to arrive at essentially similar asset allocations in the end. If the tactic results in an extreme asset allocation the results may also be extreme.

I think if the conversation seems muddled, the starting point is to go back to the fundamentals of what is asset allocation and why does it matter.
Last edited by dbr on Mon Sep 28, 2020 8:28 am, edited 1 time in total.
Leesbro63
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Re: Buckets in Retirement

Post by Leesbro63 »

Old Sage(brush) wrote: Mon Sep 28, 2020 8:16 am I’m pretty confused by all this at the moment, probably need another cup of coffee. It seems like unless you have 100% of your financial assets invested in a single investment you have some kind of bucket strategy and a lot of the rest of the discussion is semantics. Interesting and helpful to think about nonetheless.
I'd argue the opposite. That no one really has any set of buckets at all...just "their total money" and it's overall asset allocation.
dbr
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Re: Buckets in Retirement

Post by dbr »

Leesbro63 wrote: Mon Sep 28, 2020 8:28 am
Old Sage(brush) wrote: Mon Sep 28, 2020 8:16 am I’m pretty confused by all this at the moment, probably need another cup of coffee. It seems like unless you have 100% of your financial assets invested in a single investment you have some kind of bucket strategy and a lot of the rest of the discussion is semantics. Interesting and helpful to think about nonetheless.
I'd argue the opposite. That no one really has any set of buckets at all...just "their total money" and it's overall asset allocation.
I would argue exactly that as well.
Old Sage(brush)
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Re: Buckets in Retirement

Post by Old Sage(brush) »

Could be I’m saying the same thing, with different words = semantics!
Dandy
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Re: Buckets in Retirement

Post by Dandy »

It is true that whatever sub accounts or buckets you have - your overall equity vs fixed income allocation is the same as if you didn't have buckets. But the real purpose of having separate "portfolios" is actually that they do have separate allocations and different products.

Emergency funds usually have very conservative, liquid products which most people agree with. As does money set aside for a down payment. I set aside "safe" assets to cover X years of retirement withdrawal needs. It doesn't necessarily change my overall allocation but changed the products and risks for that portfolio. Its more than mental accounting -- it is closer to having a retirement emergency fund. So my overall allocation to fixed income includes a very conservative segment that I want to keep track of - to make sure it is adequate and not excessive as we age and track our expenses. I realize that I am likely giving up some growth -- but it is a trade off I'm comfortable with.

I'm not a fan of the usual bucket approach of 3 portfolios and drawing from the most conservative bucket and then moving money around to fill the depleted buckets. Too much for me. But if it helps people manage their risk and let's them have a workable plan - I don't see the harm. It doesn't have to be optimal just understandable, workable and reasonable and probably much better than having a professional money manager manage your investments.
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bpkasl
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Re: Buckets in Retirement

Post by bpkasl »

Woodspinner on your three phase approach, curious in #3 why VGIT was chosen over a intermediate or longer term bond fund?
Thanks for the reply
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WoodSpinner
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Re: Buckets in Retirement

Post by WoodSpinner »

bpkasl wrote: Mon Sep 28, 2020 9:28 am Woodspinner on your three phase approach, curious in #3 why VGIT was chosen over a intermediate or longer term bond fund?
Thanks for the reply
VGIT is an Intermediate Treasury Fund. It has an average duration of 5.3 years (source). This is roughly in the ballpark for the timing of expected expenses needed for 4-10 years. It’s a bit simpler to manage than an actual bond ladder of Treasury STRIPs although the current yield curve sucks.

I use VGIT as well in the Growth Portfolio since I already own it for the Liability Portfolio and it’s easier to manage. A good case could be made for Long Term Treasuries for this part of the portfolio, I am just not ready to go there.

WoodSpinner
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WoodSpinner
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Re: Buckets in Retirement

Post by WoodSpinner »

dbr wrote: Mon Sep 28, 2020 8:27 am
Old Sage(brush) wrote: Mon Sep 28, 2020 8:16 am I’m pretty confused by all this at the moment, probably need another cup of coffee. It seems like unless you have 100% of your financial assets invested in a single investment you have some kind of bucket strategy and a lot of the rest of the discussion is semantics. Interesting and helpful to think about nonetheless.
Buckets is not about the fact that you can divide up the assets into different categories. It is an issue of how you decide what are the meaningful categories, how you decide how much to put in each, and what kind of plan, if any, you follow to maintain that distribution.

I do agree that for the most part there is no big difference in the outcome among the different ways to arrive at essentially similar asset allocations in the end. If the tactic results in an extreme asset allocation the results may also be extreme.

I think if the conversation seems muddled, the starting point is to go back to the fundamentals of what is asset allocation and why does it matter.
Another big advantage from my perspective is I can get an easy read on the affordability of additional fun or other unplanned expenses.

Cases in point:

- I decided to buy an RV after Retirement, this was not in the budget or in my planned expenses. It wasn’t hard to look at the Growth Portfolio to understand the risks of the additional expense and that I could afford it.

- Decided to significantly increase my gifting to my daughter — they can really use the help NOW and it’s clear that the Growth Portfolio can support it.

I do agree that overall AA still matters but I find my approach much more helpful to determine the ranges of Allocations that are right for our Retirement.

WoodSpinner
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