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™.

Buckets of Money
AuthorRaymond J. Lucia
PublisherJohn Wiley & Sons
Publication date
February 2004
Pages320 pp (Hardcover)

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.[2] 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.[2]

  • 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.[3]

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:[4]

Stripped to its simplest form, here's the premise of the Bucket Strategy™: You organize your investments into three main groupings, or "buckets" and take the majority of the risk in Bucket No. 3, largely with stocks and real estate. You live by spending down the first two, relatively "safe" buckets; meanwhile, you don't touch that third bucket.
The strategy is designed to "buy" time by having reliable sources of income in retirement while you allow your stocks and real estate to grow for 15 years or more, all with the aim of reducing the risk that's inherent in stock-market investing.

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:

A more foolproof way must be found to achieve financial success. It needs to be a method that with a high degree of certainty that, if implemented properly, will work under the stress of world wars, recessions, and the like. I believe it's possible to bullet-proof your retirement. But the key is found not in the art but in the science of a money-management strategy.
The science of asset allocation--in particular the Buckets of Money approach--has been time-tested.

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.

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:[5]

These strategies are an optical illusion at best and create a potential for grave disappointment at worst....

If you decide to adopt the so-called buckets approach to retirement income planning then beware of the fact that your total asset allocation and implicit exposure to equity will fluctuate unpredictably over time. Moreover, if indeed you experience a poor initial sequence of investment returns – so that you have been forced to liquidate all your cash investment--you might find yourself with a 100% equity exposure well into retirement and possibly deep into a bear market. This is in contrast to the non-bucketer... who is maintaining the same exact asset mix and hence the same risk profile over time. Sure, the market may recover by the time you have to tap into the equity portion – or it may not.

Either way, you have neither reduced nor mitigated financial risk but simply taken a bet on scenarios you believe will not happen. Safety is just a mirage.

Also see this Bogleheads® forum topic: The Bucket Approach, Paisley. July 23, 2019 which mentions Kitces, Michael (November 12, 2014). "Managing Sequence Of Return Risk With Bucket Strategies Vs A Total Return Rebalancing Approach". Kitces.com. https://www.kitces.com/blog/managing-sequence-of-return-risk-with-bucket-strategies-vs-a-total-return-rebalancing-approach/.

...The point of all this discussion is not to make the case that decision-rules bucketing strategies are inferior. To the contrary, as long as they are implemented along with rebalancing, their results are exactly the same...


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