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Post by mba123 on Mar 25, 2024 12:51:54 GMT
Hi All - First time poster here but long time intermittent lurker on M*. We are possibly nearing retirement and am interested in revisiting the bucket method topic that R45 used to talk about a lot. I searched this forum and was surprised not to see anything perhaps because most of you are more advanced investors and might not need to discuss such a simple topic?
We are 55 and 57 yo. Husband planned on working until 60 ish but may be separated soon from job. Did lots of travel etc and kind of over it so not exactly where we wanted to be but at about 2.8 million with house paid off and college tuition done for 2 boys. Would have liked to help more with grad school etc but not sure what will work now.
Anyhow, we are mostly in 401Ks, little cash (maybe 100000). Almost all domestic stock and heavy in tech sector (very heavy on tech), which has served us well but I know we need to (1) diversify. I know we should (2) switch to ETFs for tax purposes and then probably set dividends to (3) stop reinvesting to take advantage of that 0% qualified dividends tax rate. Also, healthcare will be a very expensive thing until we turn 65 but that's a topic for anotehr thread I suppose.
But to get to the point, does anyone have a good link to an ariticle on the bucket approach and can you share what your personal experience is with this approach if you use it?
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Post by yogibearbull on Mar 25, 2024 13:12:59 GMT
I don't think retiredat48 has posted much on the bucket system (don't know R45). M* Christine Benz posts a lot (!) on 3-bucket system that is a modification of Evensky's original 2-bucket system. She is active on M* & social-media (X/Twitter, etc). There was even an interview of Evensky by Benz where Evensky said clearly, just 2-buckets!
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Post by steelpony10 on Mar 25, 2024 13:21:55 GMT
mba123 , Above on the upper right message Mustang (?) or read his posts for all things buckets. You can also go through recent threads above and look for the topic.
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Post by win1177 on Mar 25, 2024 13:33:10 GMT
Welcome mba123! I would suggest you go to Morningstar and read some of the literature posted by Christine Benz about the bucket approach. Some (many?) of us on Big Bang use modified versions of the the bucket approach, we just don’t see the term used as often. For instance, my wife and I are in our mid 60’s, and I am recently retired while she is in her last 1-2 years of working. We have always been “very aggressive” in our investing, and (fortunately) it has paid off with a very large portfolio, more than we will ever need. So much of our portfolio will be invested for heirs and charity.
Most commonly you will hear people discuss “three buckets”, referring to Bucket 1 as the “cash and short term liquidity bucket”. It is usually 1-2 years of spending money, or “spending needs”. Then Bucket 2 is your bucket for the following 5-8 years, it is usually composed of a mix of bonds/ fix income, with also some equity positions. This “mix” is heavily dependent on one’s asset allocation, which also depends on one’s “risk tolerance” and risk “capacity”. Bucket 3 is really your “long term” bucket, it is composed primarily of equity positions, meant for solid long term growth, but also the most “volatile” of the three buckets. It will also include some bonds/ fixed income, depending on one’s risk tolerance.
For instance, my wife and I have about 3-4% of our portfolio in bucket 1, another 10% in bucket 2, and the rest in bucket 3. BUT, as I mentioned above, we have a very large portfolio, with much more than we need, so we’re investing for heirs and charity. Again, Morningstar has some real good articles on the “bucket approach”.
Win
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Post by retiredat48 on Mar 25, 2024 14:12:43 GMT
mba123 ,...Hi....R48 here...I assume you meant me for R45! Tell us more of what you seek. The bucket approach by M* C. Benz is AFAIK an asset allocation model...placing monies into buckets to use in retirement. My buckets approach is dividing any future buys into a number of buckets to invest, then proceed buying in buckets. Typically five buckets but I have used up to ten buckets for highly volatile assets. Note this does not mean I do not support 401.K type investing which is dollar cost averaging. You invest an amount from each paycheck, usually bi weekly. This has many merits. But if you make any major changes in holdings, one should consider Pyr up in moving from one fund to another. BTW There is a parallel thread going re Pyramid Up investing and using "buckets." I await your reply R48
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Post by mba123 on Mar 25, 2024 15:11:26 GMT
Thanks, R48! I had you retiring a few years early, I suppose, but 48 is pretty amazing.
My first post gives an overall picture of our current 401K money. We were hoping to save more but it seems like we may be at the end of the road!
We are thinking about working with an FA, but that fee comes out to almost 1K monthly, and I'm just not sure it's worth our while. We are also considering a fiduciary who works at an hourly rate to sort of rebalance our portfolio and give us a little reassurance as far as what a safe withdrawal rate would be. Our expenses should go down at 65 since Medicare will kick in but until then, we expect that health insurance will be quite expensive.
My first question is probably a simple one for a seasoned retiree like yourself. What is your favorite tool to determine if your money will last based on various assumptions (ie, returns, years of life, etc). We have some money at Fidelity and some at Vanguard and so have been using both of their tools. I guess like many new retirees this is our biggest concern. Will our money last? Any books, sites, or information to reassure ourselves would be very helpful.
Do most investors here use Fidelity or Vanguard or something else these days? I was so surprised to see a Fidelity FA show that many of their index funds now carry lower expense ratios than Vanguard funds. I wish I had taken a screenshot of what he showed us.
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Post by yogibearbull on Mar 25, 2024 15:12:15 GMT
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Post by retiredat48 on Mar 25, 2024 20:26:13 GMT
Thanks, R48! I had you retiring a few years early, I suppose, but 48 is pretty amazing. My first post gives an overall picture of our current 401K money. We were hoping to save more but it seems like we may be at the end of the road! We are thinking about working with an FA, but that fee comes out to almost 1K monthly, and I'm just not sure it's worth our while. We are also considering a fiduciary who works at an hourly rate to sort of rebalance our portfolio and give us a little reassurance as far as what a safe withdrawal rate would be. R48 replies in bold...If you feel some comfort investing, yes, you save a lot by not using an advisor. Yes, using an advisor one time for initial retiree portfolio setup could be done also. Finally, Vanguard and fidelity each provide people to assist you, in varying degrees, for varying fees...either one time or annually. Our expenses should go down at 65 since Medicare will kick in but until then, we expect that health insurance will be quite expensive. You fund this health insurance by using a set-aside in your portfolio, for the health insurance/medical costs to get you to medicare date. Then consider all other monies your investible portfolio. Then run any calculations. My first question is probably a simple one for a seasoned retiree like yourself. What is your favorite tool to determine if your money will last based on various assumptions (ie, returns, years of life, etc). Many portfolio analyzers and studies exist but the common one is having your money last 30 years out, without running out, at a very high success rate probability. Typical analysis show 4% annual withdrawal from portfolio is very safe. At your $2.8 million, this calculates to an annual withdrawal of $112,000, and very safe. So, do you project spending more than $112,000? If not, then retirement is in the cards! We have some money at Fidelity and some at Vanguard and so have been using both of their tools. I guess like many new retirees this is our biggest concern. Will our money last? Any books, sites, or information to reassure ourselves would be very helpful. Read on guru's: Trinity Study/Wm Bengen and Wade Pfau; or M. Kitces...or my favorite: Jim Otar. Otar has a very informative website for investors who want to learn more about retirement financial longevity and strategy. His website is available without registering:
www.retirementoptimizer.com
Most hone in on the very conservative 4% SWR rule.
Do most investors here use Fidelity or Vanguard or something else these days? Yes.I was so surprised to see a Fidelity FA show that many of their index funds now carry lower expense ratios than Vanguard funds. I wish I had taken a screenshot of what he showed us. Don't be misled by this. Fido offers a loss-leader low ER on money market and s&p 500 index funds , by a very small amount it beats vangd, to get you to put your money there. Vangd runs things at-cost...no loss leaders. Vgd is much less expensive. And IMO Vangd has patents on some technique advantages, and simply gets a better overall return on its index funds due their experience in running them. Bottom line: Where fido beats vangd, the ER differences are negligible to your long run portfolio performance.
R48
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Post by win1177 on Mar 25, 2024 21:55:27 GMT
mba123, I just called Vanguard last week to get information on them managing our portfolio. They have a wealth management service, where they assign you an “experienced wealth manager”, who is also a CFP. He/ she becomes your personal advisor, and draws up a detailed plan for your assets. The fees were very reasonable, they charge 0.3% for the first 5 million, 0.2% for the second 5 million, and 0.1% for anything above that 10 million point. It is lower than what Schwab quoted me. Everywhere else seems more expensive.
I am looking in case something happens to me (death/ disability, etc.), my wife is smart, but has ZERO interest in “managing our portfolio”. So far, she does NOT want me to turn over the management to them but it is what I am recommending if the unthinkable should happen.
Second point to remember, I am now 65 and I have been surprised that Medicare does NOT cover as much as I thought they would. Just be prepared for continued medical expenses after Medicare starts. I have a (supposedly) good secondary plan from my work for the state, BUT once I started Medicare it covers less than beforehand.
Win
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Post by Mustang on Mar 25, 2024 23:38:46 GMT
The 4% Rule was created using historical data. It is the maximum safe withdrawal for the worst 30 year retirement period in the history of the United States. It has been verified by other studies using historical data and those using Monte Carlo computer simulations. Sequence of Returns Risk is a real problem but by focusing on the worst retirement period it was included in the studies. In spite of its name, the 4% Rule isn’t a percent of portfolio withdrawal method. 4% is used to calculate the initial withdrawal. That dollar amount is then increased each year for inflation. 4% is specifically used for a 30 year payout period which takes someone 65 to age 95. For those who retire early a 3% initial withdrawal should be used. Those a little older might be looking at a 20 year payout period. In that case a 5% initial withdrawal can be used. Since investment assets can be used for many things, the portfolio should be divided into at least two sections: The first is used for retirement only. The second is for everything else like emergencies, vacations, etc. The initial withdrawal is calculated only on the retirement assets. The withdrawal is similar to gross income in that expenses such as taxes and advisor fee are paid from the withdrawal and not retirement assets. Taking taxes and fees from retirement assets increases longevity risk, the risk of running out of money. Harold Evensky, who created the bucket approach in 1985, said that the sensible number of buckets for a do-it-yourself investor was two. He is said to have simply bolted on a cash account to his total return portfolios. Evensky said that the bucket approach’s purpose isn’t to increase returns. Its purpose is to prevent panic selling. It’s an inexpensive behavioral insurance policy. Modern advocates have added complexity by using three or more buckets with multiple funds in each. Christine Benz is a strong advocate of that approach but it isn’t necessary. A simpler structure performs just as well. She tested a simplified bucket approach by attaching a cash bucket to Vanguard Balanced Index Fund (60% stock and 40% bonds). For the period 2000-2017 she compared it to her multi-fund approach. She said she preferred the modern three bucket/multi-fund method because it finished the test with a higher ending balance. A reader pointed out that if she had used Wellesley Income Fund instead of Balanced Index Fund, the single fund approach would have had a ending value greater than her multi-fund portfolio. Balanced Index Fund lost money 2000-2002 and lost 22.2% in 2008. Wellesley Income had solid returns 2000-2002. And, it only lost 9.8% in 2008.
If an investor want to separate income from growth then Bucket 1 could be a money market fund, Bucket 2 an income fund, and Bucket 3 a growth fund. It doesn't have to be complicated.
Bucket 1 (cash or cash equivalents) is spent first. It is replenished from the income from Bucket 2. If that is insufficient then annual rebalancing is used to replenish both Buckets 1 and 2 from Bucket 3. The Bucket method can be as complicated or as simple as you want. I like simple. It makes managing the portfolio and the transfer of management to your spouse much easier.
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Post by retiredat48 on Mar 26, 2024 1:31:06 GMT
Mustang,.......+1.....Nice post. Guess that means I agree with it. I would add: To me, the bucket approach is just common sense investing. Most retirees know they have to do withdrawals from their portfolio. They don't want to be taking from stock funds in severe bear markets, so having some in bond funds (which btw usually do the opposite of stock funds) provides the reserves. Not very complex. A typical allocatd 50/50 to 75/25 bonds usually suffices. R48 R48
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Post by Norbert on Mar 26, 2024 10:02:23 GMT
mba123"What is your favorite tool to determine if your money will last based on various assumptions (ie, returns, years of life, etc)?" I like Portfolio Visualiser's Monte Carlo simulation tool. www.portfoliovisualizer.com/monte-carlo-simulation#analysisResultsThis tool allows us to stress test various portfolios by examining sequence of return risk. For example, we might backtest a Wellington portfolio starting in January 2000, but pack the worst six years together at the start of the run. The tool offers that capability. The idea is to model the impact of a major crisis on portfolio returns. While this kind of scenario is unlikely, it's useful to know how resilient our portfolios might be in case real trouble. How much risk exposure is acceptable? "Hope for the best, prepare for the worst." Fwiw. N.
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Post by yogibearbull on Mar 26, 2024 11:18:59 GMT
Portfolio Visualizer (PV) also has, under Metrics, the historical SWR and PWR for portfolios, and a modified SWRM can also be deduced. Search for related threads on BB.
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Post by catdog on Mar 26, 2024 17:04:57 GMT
THE FOLLOWING ARE MY OPINIONS:
Take some of your growth off the table, but keep a minimum of 40% there. Probably more for you as you seem to have a high tolerance for risk
Do not overdiversify. I am not a big fan of Small Caps and International investing.
It's a wonderful time to be in risk free fixed income.
catdog
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Post by retiredat48 on Mar 26, 2024 21:05:39 GMT
THE FOLLOWING ARE MY OPINIONS: Take some of your growth off the table, but keep a minimum of 40% there. Probably more for you as you seem to have a high tolerance for risk Do not overdiversify. I am not a big fan of Small Caps and International investing. It's a wonderful time to be in risk free fixed income. catdog @ catdog,...Hi.....40% in growth?? Do you mean 40% value and growth stock funds?? To me, 40% in growth is quite high. It may be values turn to shine in next decade, and the retiree gets annual dividends along the way. Safer. R48
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Post by catdog on Mar 27, 2024 17:07:18 GMT
R48 I agree with you. 40% equity would be enough for me. Based on their OP they seem to be comfortable with risk. At their ages they have a long retirement ahead and seemed concerned about healthcare going forward. I am very lucky to have VA healthcare.
Catdog
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Post by mba123 on Mar 28, 2024 18:53:50 GMT
Thank you all for your thoughtful replies! I have to think about my buckets and read more about this. We would be okay with a 4% withdrawal from our portfolio.
Mustang brings up an important point about using 3% if you retire early and then adjust later. I've also read that when you retire early, your initial expenses may be higher until Medicare hits.
And Win1177 - yes, my parents both had Medigap insurance, and I am very much planning to do the same. Good point!
R48 - thanks for the tip about VG - I think Fidelity's bells and whistles as far as online tools are tempting and sometimes Vanguard's service at our level doesn't seem to be the greatest, but I guess you maybe get what you pay for.
We have a large part of our portfolio in stocks and tech sector and have done well so it'll be tough to rebalance but I know we need to! I've made such an amazing return on Nvidia alone (and I secretly hope it brings us into really big money territory someday. A girl has gotta have dreams)!! After the accumulation years, those are the things that keep me going, but alas, I know I need to focus on nonmaterial things! At our current level of savings, it just feels like we would have to "watch" our budget, and we have never done that, so it'll be an adjustment for sure. We would be comfortable but the dreams of the vacation home and extensive traveling might have to be put to bed. Sigh...
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Post by Mustang on Mar 28, 2024 21:11:03 GMT
Thank you all for your thoughtful replies! I have to think about my buckets and read more about this. We would be okay with a 4% withdrawal from our portfolio. Mustang brings up an important point about using 3% if you retire early and then adjust later. I've also read that when you retire early, your initial expenses may be higher until Medicare hits. And Win1177 - yes, my parents both had Medigap insurance, and I am very much planning to do the same. Good point! R48 - thanks for the tip about VG - I think Fidelity's bells and whistles as far as online tools are tempting and sometimes Vanguard's service at our level doesn't seem to be the greatest, but I guess you maybe get what you pay for. We have a large part of our portfolio in stocks and tech sector and have done well so it'll be tough to rebalance but I know we need to! I've made such an amazing return on Nvidia alone (and I secretly hope it brings us into really big money territory someday. A girl has gotta have dreams)!! After the accumulation years, those are the things that keep me going, but alas, I know I need to focus on nonmaterial things! At our current level of savings, it just feels like we would have to "watch" our budget, and we have never done that, so it'll be an adjustment for sure. We would be comfortable but the dreams of the vacation home and extensive traveling might have to be put to bed. Sigh...
Other research has shown that the initial withdrawal can be increased 10-20% my taking less than inflation annual increases. That would up a 4% initial withdrawal to 4.4-4.8%. In subsequent years you would then increase the dollar amount by one percentage point less than inflation. For example, if the social security increase is 4% you would increase your withdrawal from your retirement fund only 3%. Every individual is different but if the research holds true for you it wouldn't affect your standard of living at all.
There are three things that tend to make this risk acceptable. The Trinity Study (1998) said that CPI overstates inflation by one point. (I have no idea if this is true). It also said that 17 of the 18 failures of 5% for 30 year came in the stagflation years where returns were low and inflation high (sometime double digit high). Lastly, the 4% Rule was based on the worst retirement period in history (a retirement starting in 1966 extending through the stagflation years). Most retirees would never experience that. So it seems fairly safe to increase the initial withdrawal a little and take less than inflation annual increases. But there is risk involved. The future could revert to a stagflation similar scenario. It all depends upon our elected government.
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Post by retiredat48 on Mar 29, 2024 0:09:41 GMT
Mustang ,...who posted: "The Trinity Study (1998) said that CPI overstates inflation by one point. (I have no idea if this is true)."This does not sound correct to me. Most, and I mean most, say the CPI UNDERSTATES inflation by 1% a year. Studies such as PIMCO Bill Gross considers the understatement is 1.4%. My historical experience senses the same. Gvts try all their means to keep inflation low. Lot's of trickery even in the current CPI. Suggest realize inflation is more than CPI states. R48
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Post by liftlock on Mar 29, 2024 20:54:03 GMT
What is your favorite tool to determine if your money will last based on various assumptions (ie, returns, years of life, etc). I like the Excel based the Pralana Retirement Planning Calculator. It is scheduled be available in a web based (non-Excel) version later on this year. pralanaretirementcalculator.comTwo books: Pensionize Your Nest Egg by Moshe Milevsky This a nice primer explaining the major risks faced by retirees in making their money last. Milevsky is a highly regarded expert in retirement math. Don't be turned off by the word "pensionize" in title. The book explains the rational for having guaranteed income sources to help mitigate longevity risk of running out of money. www.wiley.com/en-us/Pensionize+Your+Nest+Egg:+How+to+Use+Product+Allocation+to+Create+a+Guaranteed+Income+for+Life,+2nd+Edition+-p-9781119025252 Retirement Planning Guidebook by Wade Pfau. A more in-depth treatment on the subject by another highly regarded expert. retirementresearcher.com/books/Do it yourself financial planning can be valuable even if one decides to seek help, advise, or a confirming opinion from an investment professional. Post Edit Update: Here is an article Milevsky wrote on evaluating the longevity of an investment portfolio and a spreadsheet I developed based on it. Milevsky - Its Time to Retire Ruin Probabi....pdf (144.26 KB) Milevsky - Longevity of an Investment port....xlsx (15.34 KB)
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Post by mba123 on Apr 2, 2024 13:44:26 GMT
Lots of good stuff! Do any of you recommend podcasts? I recently listened to the Retirement Answer Man, which may be too simplistic for many of you seasoned folks, but it helped a bit. So using the example from Mustang above, if I have 3 buckets - one cash or similar to use, one to replenish and one set to grow/accumulate, I would only be withdrawing 4% or the equivalent between buckets 1 and 2? That makes me a little nervous because I was doing rough estimates based on our entire portfolio but I like the idea of one bucket staying undisturbed. Also, Retirement Answer Man says another way is to keep an emergency bucket - new roof anyone? Wondering what kind of emergencies you have had and what you've seen friends in similar age groups have. Seems to me one of the hardest things is figuring out how I want to organize and plan my buckets. Another point from the podcast was that there is a big difference between a financial advisor and a retirement planner - have any of you come across this? Any opinions on the Mercer Advisor Group?
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Post by mba123 on Apr 2, 2024 13:47:48 GMT
THE FOLLOWING ARE MY OPINIONS: Take some of your growth off the table, but keep a minimum of 40% there. Probably more for you as you seem to have a high tolerance for risk Do not overdiversify. I am not a big fan of Small Caps and International investing. It's a wonderful time to be in risk free fixed income. catdog Thank you! Fixed income is high, I thought (??) based on inflation, and so the true benefit is smaller than it seems (does that make sense?) Is this where so many of you are into the CEFs? I have very little experience in these and am eager to learn more about why they are popular in retirement. I understand the basics that they are closed ended so I suppose there is less volatiity of principle?
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Post by catdog on Apr 2, 2024 17:46:39 GMT
There are a few posters here that know a lot about closed end funds. Scroll down as it is one of the categories here.
catdog
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Post by Mustang on Apr 2, 2024 18:11:58 GMT
Lots of good stuff! Do any of you recommend podcasts? I recently listened to the Retirement Answer Man, which may be too simplistic for many of you seasoned folks, but it helped a bit. So using the example from Mustang above, if I have 3 buckets - one cash or similar to use, one to replenish and one set to grow/accumulate, I would only be withdrawing 4% or the equivalent between buckets 1 and 2? That makes me a little nervous because I was doing rough estimates based on our entire portfolio but I like the idea of one bucket staying undisturbed. Also, Retirement Answer Man says another way is to keep an emergency bucket - new roof anyone? Wondering what kind of emergencies you have had and what you've seen friends in similar age groups have. Seems to me one of the hardest things is figuring out how I want to organize and plan my buckets. Another point from the podcast was that there is a big difference between a financial advisor and a retirement planner - have any of you come across this? Any opinions on the Mercer Advisor Group? Whether its called a bucket or something else like an emergency fund, I believe that a portfolio should be separated into at least two sections: one for retirement income and one for other things like emergencies, health care and inheritance This isn't part of the bucket strategy. The bucket strategy was designed to prevent panic selling and bucket 3 has a specific purpose. Without re-balancing to refill buckets 1 and 2 a retiree could over time run bucket 2 to zero.
The emergency assets should not be considered a growth bucket. Emergencies are not things like vacations and a new car. They are not planned,. There is no telling when those assets would have to be sold. If the roof is torn off your house or there is a major health care crises, assets may have to be sold regardless of market conditions. I keep my emergency investments in totally different funds than my retirement assets. They are in a combination of money market and moderate-allocation funds. All in Roth accounts. If I'm forced to sell in an emergency I want to be able to count on all the money, not share the withdrawal with the government.
P.S. If you don't want to use bucket 3 to replenish buckets 1 and 2 then you are not using the bucket strategy. To make it work bucket 2 would have to generate enough income to refill bucket 1 by itself. That is pretty much an income withdrawal strategy where dividends and interest are withdrawn to pay the bills. The income strategy requires a different asset allocation than the bucket strategy.
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Post by catdog on Apr 2, 2024 19:29:41 GMT
There are a few posters here that know a lot about closed end funds. Scroll down as it is one of the categories here.
catdog
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Post by mba123 on Apr 12, 2024 22:08:04 GMT
P.S. If you don't want to use bucket 3 to replenish buckets 1 and 2 then you are not using the bucket strategy. To make it work bucket 2 would have to generate enough income to refill bucket 1 by itself. That is pretty much an income withdrawal strategy where dividends and interest are withdrawn to pay the bills. The income strategy requires a different asset allocation than the bucket strategy.
Mustang, I'm a little confused by this. Let me see if I understand this. Using the bucket strategy, I would never touch Bucket 3 and so bucket 2 would have to generate enough income to dump into Bucket 1, which is what I'd live off of? So if I need 100K to live on (in Bucket 1), I'd have to have 2.5M in bucket 2 (assuming a 4% dividend in a fixed income fund)? Oof that seems high. Typically what are the recommended allocations percentage wise to the Buckets? That would give me a good idea of what I need to retire. I was simply using the 4% of X rule to determine if I could retire. And that would be 4% of X = 100K so I guess that's the income withdrawal strategy.
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Post by Mustang on Apr 13, 2024 2:08:02 GMT
Using the bucket strategy you would take returns from bucket 3 to refill bucket 2 and bucket 1 if income from bucket 2 was insufficient. Bucket 2 is an income bucket. If income is sufficient to cover the entire withdrawal then you would be using an income withdrawal strategy.
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Post by Mustang on Apr 13, 2024 2:27:13 GMT
I have a problem with annual re-balancing. The purpose of the bucket strategy is to prevent panic selling. That means selling when the market is falling. Yet, annual re-balancing does exactly that.
It really doesn't matter if you refill bucket 1 from bucket 2 if you sell bucket 3 to refill bucket 2 then the money for bucket 1 actually came from bucket 3. If you don't want to sell stocks at a loss then you would not re-balance with the market is down. The investor would let the money in bucket 2 fall until the market recovers then refill it. Here is a criticism of the bucket strategy. earlyretirementnow.com/2021/09/14/bucket-strategies-swr-series-part-48/
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Post by mba123 on Apr 14, 2024 0:37:39 GMT
I'm so sorry, but I posted the following AI-generated bucket approach on the wrong thread. I copied and pasted it below. Mustang , thanks for the feedback on the other thread.
Here is what ChatGPT said, and my modified approach.
### Bucket 1: Immediate Cash Needs - **Purpose**: To provide liquidity for immediate expenses without exposure to market fluctuations. - **Composition**: Primarily cash and money market funds, with a small portion in ultra-short-term bonds. - **Amount**: Since you plan to draw $100,000 annually, it is sensible to hold about $200,000, enough to cover two years of expenses. This buffer is crucial, especially in an aggressive strategy, to mitigate the need to sell volatile assets in a downturn.
### Bucket 2: Enhanced Income Generation - **Purpose**: To generate income but with a tilt towards higher-yielding and potentially higher-risk investments. - **Composition**: High-yield bonds, emerging market bonds, convertible bonds, and some high-dividend stocks and REITs. - **Amount**: With a focus on a slightly higher yield, perhaps targeting 5-6%, you would need about $1,666,667 to $2,000,000 to generate $100,000 annually. This increased yield comes with higher risk.
### Bucket 3: Aggressive Long-Term Growth - **Purpose**: To maximize capital appreciation over the long term, accepting higher volatility and risk. - **Composition**: A larger allocation to stocks, particularly in sectors such as technology, biotech, and emerging markets. This may also include smaller allocation to speculative assets like cryptocurrencies or sector-specific ETFs. - **Amount**: This should be the largest portion of your portfolio to leverage the potential for high returns over time. The exact amount will be influenced by how much is allocated to Buckets 1 and 2 but aiming for around 60-70% of your total portfolio could be suitable.
### Example of Aggressive Allocation: Assuming a total investment of $3,000,000, here's how you might allocate your funds: - **Bucket 1**: $200,000 (6.67%) - **Bucket 2**: $1,800,000 (60%) — Adjusted for higher-yield but riskier assets. - **Bucket 3**: $1,000,000 (33.33%) — Focused on high-growth stocks and sectors. I now understand that the AI interpretation of the bucket approach is not ideal and it's more of an income withdrawal method.
Mustang So, to keep this simple, if I wanted to hypothetically live on 100K yearly and I have a 3M portfolio, one approach would be:
Bucket 1: 300K (about 3 years of money); Bucket 2 (8 years of money): 800K; Bucket 3: the balance 1.9M.
For anyone who wants to share, I'm curious: Do you use a bucket approach or an income withdrawal approach (which, to me frankly, seems easier)? What are most people doing or talking about doing?
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Post by saratoga on Apr 14, 2024 1:32:19 GMT
mba123: For anyone who wants to share, I'm curious: Do you use a bucket approach or an income withdrawal approach (which, to me frankly, seems easier)? What are most people doing or talking about doing?
My soft budget is pension + SS + RMD that should meet most of my normal expenses. (RMDs are taken mainly from PRWCX and TIAA Traditional) So, I do not need a complicated income withdrawal plan.
I may construct a trust for my beneficiaries with two bucket distribution plan, however. It could be an x% withdrawal of the 3 year average of investment asset values, like what universities often do with donated funds. Withdrawals could go to the second bucket invested in safe assets. Distributions can be made from this safe asset bucket, but I have not figured out the details.
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