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https://theretirementmanifesto.com/your-bucket-strategy-questions-answered/Two of the most popular posts I’ve ever written are about The Bucket Strategy, and how we’re using it to fund our spending in retirement.
But…you still have “Bucket Strategy Questions”. Today, we’re answering specific questions raised by the readers regarding the bucket strategy, and how it actually works in retirement.
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Today’s mantra - Q/E - Now and forever!
The S&P 500 Price index returned -6.59% in 2018. Using a better calculation which includes dividend reinvestment, the S&P 500 returned -4.75%..
Not that long ago, Derf
I’m not sure whether such minor fluctuations in value would have been enough for @Crash to stop withdrawing money from his holdings? Geez - if like myself you’re only pulling 7% out yearly, the “hit” from withdrawing money during a 3-4% off year is almost negligible - especially if you stagger the withdrawals.
@hank Wifey would have me spend it all right now. She can always come up with a "good" reason to spend money. ;). And I'm long since past feeling indignant, every time her family asks for money. The latest? Her brother's cataract surgery. Yes, he's got "insurance," but it's suck-ass insurance. Philippines is still very much a third-world country.
I'm investing primarily for heirs. I don't want to draw down the total. Right now, I'm only just starting to expand beyond funds, into single stocks. Those will be small-ish plays. I could even withdraw from the IRA and throw it in the brokerage "sweep" account. Thus, it COULD serve as my ONLY "bucket."
I'm lately not very happy with Navy FCU. My local branch has been designated a "limited cash location." So, last time I wanted to cash wifey's check, I was told they'd give me only $250, and we'd have to wait for the rest. ... Which is why Hickam FCU is becoming our primary, Navy our secondary. (Anyone who lives on Oahu is eligible for Hickam.)
https://www.marketwatch.com/story/think-you-can-rely-on-the-4-rule-in-retirement-think-again-11617913126
Author seems to dismiss the US market going forward...not sure that's fair. Do Italians invest in merely Italian stocks? That would be like US investors investing in one US state's stocks. The US market is global in it's footprint...nowhere near as narrow a single country market outside of the US.
I used Portfolio Visualizer and a list of older mutual funds...found here:
https://gfmasset.com/2018/12/list-of-oldest-mutual-funds/
Here's an example of four of the oldest International mutual funds (SLSSX, FOSFX, VTRIX and ANWPX). They all date back to 1985 and I provide 4% withdrawal data through 2021.
International Funds using a 4% withdrawal 1985 - 2021
I conclude one would be well served with either a broad based US or International fund.
I also attempted to create (60/40) allocations using the above stock funds and SCSBX as the bond proxy. I also selected VWELX instead of the author's VBINX since I could back test further (1985).
Using International 60/40 Allocations and a 4% Withdrawal Compared to VWELX
Interestingly, they all performed better than VWELX over the last 36 year period (1985-2021)
I’m 22+ years retired. Don’t subscribe to any particular cardinal rule on how much to pull out yearly. Varies based on needs and, to a lesser extent, on the fortunes of the markets (Crash’s point). I’d guess it’s about 7% yearly on an average basis. It’s worked well for me, If it works as well for the next 22 years I’ll be 96 - likely too old to care or fully comprehend.
I was only thinking out loud: "under the right circumstances, a Producer could make more money with a flop, instead of a hit."
The prospect I was entertaining is this: after the brokerage is opened, I could conceivably continue to build the available total in that sweep account. "Building some dry powder." To do it, I could take no more than my usual annual amount ($4-5k) from the IRA and just not USE it. I could add it to whatever is already in the sweep account. then, eventually use it.
- Asset allocation. Rather than work with fixed percentages, the allocation is done by time: so many years in cash, so many years in bonds, and the remainder in equities. In his case, he came up with 63% (not 60%) in equities. He's actually got a pretty conservative cash (3 year) / bond (8 year) allocation. The cash/bond allocation lets you invest the remainder (however much that is) in equities without worrying about sequence of return risk, volatility "risk", etc.
- Annuities. He avoids the question of what bucket this income stream (or pensions, or SS) falls into. If one were targeting a particular asset allocation, then this question would matter. But because he's basing cash and bond allocations on how much extra income he needs, this question never arises.
He touches on annuity strategies, which seems beyond the scope of bucket strategies. But since he went there, it's worth reiterating that for many people, using retirement assets to defer SS until age 70 is the optimal strategy.
In a new paper summarized here, 401(k) assets would be used to automatically provide an income stream until age 70. A temporary life annuity can provide the same income stream while enhancing value with mortality credits. (The downside is that if you die before age 70, you don't get the full value of the temporary annuity.)
https://www.kitces.com/blog/understanding-the-role-of-mortality-credits-why-immediate-annuities-beat-bond-ladders-for-retirement-income/
- HSAs. He keeps his in cash, presumably to spend as expenses are incurred. For investing, he recommends bucket 3 (equities). My take is different - I suggest bucket 2.
HSAs are like Roth IRAs - withdrawals are tax-free - so long as one can pair them with past medical expenses. I would put my slower growing Roth-ish assets into HSAs to limit the risk that the HSAs grow too fast. You don't want more money in the HSAs than you can withdraw tax-free (not enough medical expenses). Keep the faster growing assets in the genuine Roth IRAs.