Buckets of Money

Buckets of Money is a phrase used by author-advisor Ray Lucia to refer to his retirement withdrawal system. It was originally described in his 2004 book, Buckets of Money: How To Retire in Comfort and Safety, and later in The Buckets of Money Retirement Solution: The Ultimate Guide to Income for Life (2010, Raymond J. Lucia and Ben Stein). He operates an advisory service, RJL Wealth Management, which counsels and manages client portfolios, using a system with the trademarked name Bucket Strategy™.

SEC charges of misleading information
On September 5, 2012, the SEC issued a cease-and-desist order, charging Lucia with spreading misleading information about his "Buckets of Money" strategy at client seminars. The SEC’s Division of Enforcement alleges that investment adviser Ray Lucia, Sr. claimed that the wealth management strategy he promoted at the seminars had been empirically “backtested” over actual bear market periods.

Backtesting is the process of evaluating a strategy, theory, or model by applying it to historical data and calculating how it would have performed had it actually been used in a prior time period. A backtest must utilize actual data from the time period in order to get an accurate result.


 * According to the SEC’s order, Lucia and RJL have admitted during the SEC’s investigation that the only testing they actually performed were some calculations that Lucia made in the late 1990s – copies of which no longer exist – and two two-page spreadsheets.


 * According to the SEC’s order, the two cursory spreadsheets that Lucia claims were backtests used a hypothetical 3 percent inflation rate even though this was lower than actual historical rates. Lucia admittedly knew that using the lower hypothetical inflation rate would make the results look more favorable for the Buckets of Money strategy. These alleged backtests also failed to account for the negative effect that the deduction of advisory fees would have had on the backtesting of their investment strategy, and their “backtesting” did not even allocate in the manner called for by Lucia’s Buckets of Money strategy.


 * According to the SEC’s order, Lucia and RJL also failed to maintain adequate records of the backtesting as they were required to do under an SEC rule. The pair of two-page spreadsheets was the only documentation of their backtesting calculations, and those spreadsheets failed to duplicate their advertised investment strategy.

Raymond J. Lucia disputes the charges and claims that the data in question was pulled from some presentation slides and has not used them since 2010.

The strategy
The "Buckets of Money" strategy is one of many "systematic withdrawal systems" for drawing money from a portfolio during retirement. Like many such strategies it has received interested attention within the forum. It has never been specifically recommended as part of the Bogleheads investment philosophy, and is not mentioned in The Bogleheads' Guide to Investing or the Bogleheads' Guide To Retirement Planning.

Conceptually, what makes the "buckets" strategy different from others is that the portfolio is not treated as a whole, but is segregated into three separate portfolios or "buckets." RJL Wealth Management has a conceptual presentation of the current version of the strategy. Lucia says:

When buckets 1 and 2 are exhausted, they are refilled from bucket 3. The idea is that because bucket 3 is not required for 15 years or more, there will be time to ride out a bear market. An important point, however, is that because the safer assets are being tapped first, the third bucket becomes a larger and larger percentage of the total portfolio; the stock allocation actually increases with age. Notice that this runs counter to the usual "de-risking" strategy used in e.g. target retirement funds in which the stock allocation "glide slope" decreases continually with time.

Lucia's claims for the strategy
Lucia emphasizes the alleged safety of his method. In his words:

The SEC says that any such "testing" was sketchy and invalid. So whether or not the approach is sound, Lucia failed to provide good evidence of its soundness.

Other bucket strategies
Below are several example bucket strategies.


 * Armstrong: Invest for Total Return (video), includes full transcript. Interview with Frank Armstrong using a "two bucket" strategy. Includes full transcript. Christine Benz, Morningstar.com, Oct 11, 2011. Subscription required to view.
 * Investing During Retirement A Comprehensive Approach, Francis C. Armstrong, CLU, CFP, 2002.
 * Getting Your Buckets in a Row (Video no longer plays), includes full transcript. Several bucket-oriented approaches that investors can adapt for their retirement portfolios. Christine Benz, Morningstar.com, Mar 22, 2012. Subscription required to view.
 * A Sample Retirement Portfolio Using the Bucket Approach, Christine Benz, Morningstar.com, August 30, 2012
 * A Sample ETF Retirement Portfolio in 3 Buckets, Christine Benz, Morningstar.com, September 6, 2012. Subscription required to view.
 * A Bucket Approach in Practice (Video no longer plays), includes full transcript. Financial planner Roger Wohlner describes his bucketing strategy for clients' near-, intermediate-, and long-term needs. Christine Benz, Morningstar.com, June 24, 2013. Subscription required to view.
 * A Bucket Portfolio Stress Test (article) Christine Benz, Morningstar.com, August, 1, 2013
 * Lessons From Our Bucket Portfolio Stress Tests (Video no longer plays), includes full transcript. Christine Benz's 2000-2012 simulations for bucketed retiree portfolios produced some interesting takeaways on rebalancing, the 4% rule, and more. Jason Stipp and Christine Benz, Morningstar.com, August, 28, 2013.
 * An Aggressive Retirement Portfolio in 3 Buckets Review of an aggressive three-bucket mutual fund portfolio for retirees with time horizons of 25 years; includes a brief tutorial "Bucket Basics." Christine Benz, Morningstar.com, February 13, 2014.
 * Tax-Efficient 'Bucket' Retirement Portfolios for Fidelity Investors, Review of three strategies using Fidelity funds; Aggressive (25 years or more), Moderate (20 years), Conservative (15 years), includes a brief tutorial "Bucket Basics." Christine Benz, Morningstar.com, May 31, 2015.
 * Retirement 'Bucket' Portfolios for Vanguard Investors, Review of three strategies using Vanguard funds; Aggressive (25 years or more), Moderate (20 years), Conservative (15 years), includes a brief tutorial "Bucket Basics." Christine Benz, Morningstar.com, June 7, 2015.

Criticism of the strategy
Many Bogleheads who have looked at this have concluded that it is just another withdrawal strategy. One can argue over whether it might be marginally better or worse than some other method, but there is nothing special about it. It appears to be just one way of implementing a so-called "bonds first" strategy, which has been studied by researchers (Weigand, Robert, and Robert Irons, 2008, "When Does a bonds-first Withdrawal Sequence Extend Portfolio Longevity?" Journal of Financial Planning November 2008: 66-77).

Moshe Milevsky analyzes the "buckets" approach in an article entitled "Can Buckets Bail Out a Poor Sequence of Investment Returns?" and states that:

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