is the bucket strategy a good strategy for retirement

Is The Bucket Strategy A Cheap Gimmick?

He called it a “cheap gimmick,” so I challenged him to a duel.   Strap in, folks, we’ve got a doozie today…

It’s always good when two people with strong opinions can respectfully debate a topic that they’re both passionate about, especially when they disagree.  It’s even better when they do it publicly.  Today, we’re trying something new. 

A public debate on the merits of The Bucket Strategy. 

It all started a few weeks ago when I published “The Bucket Strategy In A Bear Market.”  Not only did the article generate a good discussion with the readers (77 comments), but it also led to a flurry of activity on Twitter.

Ultimately, it was this Tweet chain with Big ERN that led to today’s article, with the title derived from this tweet:

Never one to back down from a good debate, I sent Karsten a private IM and proposed we debate the topic in a series of posts.  The first post would appear on The Retirement Manifesto and a second post would appear on Karsten’s blog Early Retirement Now.

Fortunately, he agreed and today we launch Part I of the debate:

“Is the bucket strategy a cheap gimmick, or a sound strategy for retirement?”

Big ERN vs. The Retirement Manifesto in their first public debate on the merits of The Bucket Strategy.  

This is going to be fun.

Today, Big ERN vs. Fritz in a public debate on The Bucket Strategy. Is it a cheap gimmick or a legitimate strategy? Click To Tweet  

bucket strategy debate

Is The Bucket Strategy A Cheap Gimmick?

The ground rules are simple:  Each contestant will alternate answering the question first, with the other responding.  The reader also has a responsibility:  we ask that you respond to this post with your questions/comments, which we’ll address in the second post on Early Retirement Now later this month. 

With that, let’s get started.

Q1: What Is Your Definition Of The Bucket Strategy?


In its most basic form, I define the bucket strategy as a simplified method to consider when you’ll need various assets in your portfolio and invest them based on the resulting timeline.   The main purpose is to mitigate Sequence of Return Risk (SORR) by attempting to avoid selling stocks after a downturn, using cash as a buffer to allow stocks to rebound while maintaining a retiree’s ability to fund their retirement spending.  Essentially, it’s a time segmentation of assets based on when they’re needed to cover retirement spending.  I’ve outlined the details of this structure in The Bucket Strategy Series (my most-read series of posts, ever).

There are nuances between how folks structure their buckets, I’ll use my strategy as an example:

  • Bucket 1 applies to the first 3 years of spending, and is kept in cash.  When the markets are doing well, I refill bucket 1 every quarter by selling either stocks or bonds in an amount equal to my spending since the last refill.  When the markets are doing poorly, I allow Bucket 1 to draw down and skip the refill, which allows me to avoid selling equities or bonds in a downturn. 
  • Bucket 2 is intended for years 4-9 and is typically kept in bonds (though I also consider REITS in this bucket).  I’ve recently been building a bond ladder to avoid interest rate risk on the bonds held in this bucket.
  • Bucket 3 is for long-term growth (10 years+) and is kept in equities or alternative assets.  The following graphic summarizes the approach. It shows some of the typical assets held in each bucket and the target range for each bucket.  I link each line to my Net Worth spreadsheet to easily track the status of the buckets during my Year-End Financial Review (for example only, not my real numbers):

using net worth to track the bucket strategy


I like to distinguish between three different flavors that we can all consider a bucket strategy:

1) A Strategic Asset Allocation (SAA) with specific constant weights assigned to asset classes like stocks, real estate, bonds, cash/money market, commodities, etc. The allocation can be as coarse as, say, 60% stocks, 40% bonds, or as detailed as you want, i.e., you cover all the different sub-asset classes like U.S. Stocks vs. non-US developed vs. Emerging markets. Or a money market fund vs. nominal U.S. Government bonds at all the various maturities. We can also add TIPS, U.S. Corporate bonds – investment-grade and junk-rated – and international bonds into the mix. If we view the asset classes as buckets, then there is your bucket strategy. If you have a 75% stock, 15% bond, and 10% money market portfolio, you have a 75% stock bucket, 15% bond bucket, and 10% cash bucket. I call that an asset allocation. Others may call this a bucket strategy.

2) A Glidepath (GP), i.e., changing asset weights purely as a function of time rather than based on market signals. For example, a Target Date Fund would do this. It’s done passively, based on the target retirement date. You can also implement a glidepath in retirement, which would ideally take the shape of a “reverse glidepath,” i.e., you shift up the equity weight over time. The glidepath is passive and systematic; you don’t have to be a market-timing hedge fund trader to implement this!

3) Tactical Asset Allocation (TAA) would involve intentional deviations from the strategic asset allocation weights. For example, in response to a bear market, you might deplete your cash bucket first so you don’t touch your equity holdings. And then sell stocks to replenish the cash bucket when the market has recovered.

Note that these are not mutually exclusive. In fact, you might implement the bucket flavors all at once, i.e., pick an initial asset allocation (1), then shift those target weights as you progress through your retirement (2), but also tactically deviate from the target weights to capture, for example, market valuations and market momentum (3).

Q2: How Do You Think About Asset Allocation In Conjunction With The Bucket Strategy?


I don’t employ a bucket strategy.  But I can certainly explain my ideas on asset allocation. As I’ve written on my blog, younger investors with a long enough “runway” to retirement can justify a simple 100% equity portfolio. Suppose you are risk-tolerant and even have some flexibility in your retirement date. In that case, you can hold 100% equities until retirement; see my post “Pre-Retirement Glidepaths: How crazy is it to hold 100% equities until retirement? – SWR Series Part 43.” That certainly worked for me.

In retirement, however, even someone like me with a high risk tolerance needs to scale back the risk exposure. I hold private equity real estate funds comprising roughly 12% of our portfolio. We invest the remainder in liquid assets, about two-thirds in equity index funds, and one-third in a portfolio holding floating-rate preferred shares. I like the floating-rate feature because of the current uncertainty about the path of interest rates. Preferred shares, if you wonder, are a hybrid between stocks and bonds. Most of them pay a qualified, i.e., tax-advantaged dividend. But preferred shares also have features of a bond, like a fixed notional redemption value, usually $25 a share.

Nevertheless, to account for the significant correlation between preferred shares and equities, I consider the allocation in my financial asset portfolio closer to 75/25 than 67/33. I also trade CBOE options on the S&P 500 index for additional income in the account holding preferred shares. So far in retirement, I could fund our retirement expenses solely out of the dividend plus options trading income in that one taxable account while not even touching the other two-thirds of the portfolio.


In my mind, the critical element is having a plan to ensure you’re being intentional as you make adjustments in the asset allocation of your diversified portfolio.  The Bucket Strategy, with a cash reserve for short-term spending needs, bonds as an intermediate buffer, and stocks/alternatives to defend against longer-term inflation, actually defines (initially) your targeted asset allocation based on the size of the buckets you design.   

Using Karsten’s definition of SAA and TAA, I would say that the buckets are originally designed using SAA (fixed %’s), but the allocations are not intended to stay constant with time, so it has elements of TAA (deviations in the %) as well.   Finally, due to the dynamics of keeping Bucket 1 constant at 3 years of spending, the portfolio would also exhibit elements of the Glidepath strategy over a longer period of time.  I’ll discuss this concept in more detail below.

For the sake of an example, let’s assume you hold 3 years of cash (Bucket 1), 6 years of bonds (Bucket 2), and everything else in stocks (Bucket 3).   If your portfolio equals 30 years of spending, the asset allocation becomes:

    • Cash       3 Years      10%
    • Bonds     6 Years      20%
    • Stocks    21 Years    70%
    • Total       30 Years    100%

In a growing market, the rebalancing would consist of selling either bonds or stocks (based on which has the best performance in the preceding quarter) to refill the cash bucket.  If the growth of the bonds/stocks were greater than the ~3-4% Safe Withdrawal Rate (SWR), the asset allocation of Bonds and Stocks would grow since the portfolio would now exceed 30 years of spending (growth rate exceeding withdrawals = growth of portfolio). As the portfolio grows and the cash bucket is held at 3 years of cash, the % allocation of cash would gradually decline from the initial 10% target.

Following is an example, assuming the portfolio grows to 33 years of spending (a 10% increase over time, net of inflation), assuming the growth comes from equities and the bond growth equaled the withdrawal rate:

    • Cash       3 Years         9%
    • Bonds     6 Years      18%
    • Stocks    24 Years    73%
    • Total       33 Years    100%

Theoretically, a strict application of The Bucket Strategy, with 3 years maximum in Bucket 1, would replicate a Reverse Glide Path with time, where the equity allocation would increase as the portfolio grows over time and the retiree moves further away from the early retirement years, with a corresponding reduction in SORR.  Alternatively, the retiree could decide to maintain a strict 10/20/70 portfolio, which would increase the size of Bucket 1 beyond the 3 years initially covered.

In the event of a bear market, an intentional drawdown could reduce the cash allocation to 0% in 3 years.  Therefore, The Bucket Strategy employs a combination of all three of the asset allocations Karsten outlined above.  On this point, we agree, as referenced by Karsten’s final paragraph in the “Definition” section above.

Q3: Is The Bucket Strategy a Sound Strategy or a Cheap Gimmick?


From my personal experience (having used The Bucket Strategy for the past 4+ years of my retirement in both a bull and bear market environment) it’s a sound strategy for the retiree who wants an easy-to-manage system for funding their retirement spending needs. The purpose of the strategy is to have a pre-defined approach for utilizing your investment portfolio to fund your retirement spending, regardless of market direction.  It takes the emotion out of managing your investments and avoids selling in a bear market.  Also, in response to Karsten’s original tweet, the goal is not to “generate Alpha” (excess returns), but to create an easy-to-implement system that meets your spending needs in retirement.

I’m not sure why Big ERN likes the moniker of “Cheap Gimmick”. 

To me, it works, and that’s what matters.

By holding a pre-defined amount in Bucket 1, the strategy reduces the worry of a market downturn and builds a defense against SORR.  One could argue that 3 years is insufficient to ride out an extreme bear, but I would respond that one of the strengths of the bucket strategy is its ability to be adjusted to meet the retiree’s risk profile. If the retiree feels 3 years of cash is insufficient, they can resize Bucket 1 to match their risk tolerance.   Also, by maintaining a diversified portfolio, it’s likely the retiree will have options within their portfolio to do periodic refills even during a bear market (that’s the reason I keep 10% of my portfolio in “Alternatives”). 

I’ve heard from many readers who have “too much cash” and are trying to time the market to invest the excess.  The bucket strategy takes care of this issue by directing any cash in excess of the previously defined Bucket 1 to be invested in either Bucket 2 or Bucket 3 (typically, I’ll make this decision by also reviewing asset allocation). 

Personally, I find it easier to focus on keeping Bucket 1 full, and use asset allocation as a guide for which asset class to sell for the refill (or, not sell if the allocation for a particular class is at the low end of your range). Watching the balance in Bucket 1 is, to me, easier than constantly monitoring asset allocation, and yet it accomplishes the same goal.    

Placing a cap on the size of Bucket 1 ensures sufficient exposure to higher-risk assets to offset long-term inflation risk.  While Big ERN discusses the complexities of rebalancing to achieve Asset Allocation, the reality is the bucket strategy accomplishes the same result with less effort.  If stocks are up (asset allocation increases), they would sell some stocks and keep Bucket 1 full.  If stocks and bonds are down (asset allocation decreases), they would draw down Bucket 1, helping to protect their targeted asset allocation.  In either market environment, the adjustments to Bucket 1 also help rebalance the asset allocation.  I would always recommend reviewing asset allocation as you’re making refill or drawdown decisions related to Bucket 1.  

Also, the strategy encourages buying into equities if a retiree generates some unexpected additional cash (side hustle income, inheritance, etc).  Once Bucket 1 and Bucket 2 are filled to the pre-defined cap, the strategy requires a retiree to invest any “excess” cash into equities, as I did in 2022 and explained in The Bucket Strategy In A Bear Market

To Big ERN’s comments about TAA and SAA, I’ll admit I find all of that a bit confusing. I like to keep things simple, and in my experience, The Bucket Strategy does just that.  I maintain ranges for my asset allocation targets, and I make my refill/drawdown decisions based on how my actual allocation is performing relative to those ranges. 

To me, that’s not a gimmick, but just a sound decision-making process.


I’ve written a blog post on that topic in my Safe Withdrawal Rate Series, calling bucket strategies a “cheap gimmick” and “window dressing,” and I figure that’s where the question originates. Let me state that all three flavors listed above have elements of both a Sound Strategy and a Cheap Gimmick, so this is never an either/or issue.

1) SAA: Most retirees don’t have additional income from blogs, podcasts, or spouses in the workforce. I finance 80-90% of our retirement budget by withdrawing funds from our investment accounts. If you fall into that same “bucket,” pardon the pun, you will likely not be able to have 100% equities in your portfolio. It would be best if you had some diversifying assets, like safe longer-term government bonds or short-term instruments like money market funds. And I know bonds haven’t done very well in 2022, but in some of the past market disasters, 1929, 2000, 2008, and 2020, they did provide extraordinary diversification benefits.

In any case, how do you go about picking your strategic asset allocation? My safe withdrawal rate research shows that most retirees should limit their equity allocation to between 60% and 80% and keep the remaining percentage in lower-risk, diversifying assets, like fixed-income. Historically, this mix of safe vs. diversifying assets has provided a robust hedge against even the worst economic and financial disasters while, at the same time, keeping enough high-return equities in the portfolio to survive a multi-decade retirement. As mentioned before, I’m close to a 75/25 portfolio.

Of course, you could have also developed your SAA through a bucket strategy logic. It would typically involve calibrating the size of your safe asset buckets to the length of a bear market. So, for example, if your withdrawal rate is 4% and you want to hedge against a five to ten-year market downturn, avoiding any withdrawals from your stock portfolio, you would again generate this 20% to 40% safe asset weight. So, while the final outcome of the bucket approach may be a Sound Strategy, it still feels like a gimmick and window dressing. Here’s why:

  • Since we’re talking about the SAA, there is no depletion of safe assets during the market downturn. The SAA would involve regularly rebalancing to the target weights. So, if you kept 40% in safe assets at the beginning of your retirement, you withdraw 4% p.a., and the market downturn indeed lasts ten years, then you will still have 40% safe assets after ten years, only in a smaller portfolio. Depleting specific asset buckets over time would fall into the second category. See my thoughts on the glidepath below!
  • Many of the features attributed to the bucket strategy are merely due to portfolio rebalancing. For example, if equities are down but your fixed-income portfolio is up, moved sideways, or at least didn’t fall as much as your equity portion, you will effectively take money out of the safe assets. If equities are down enough, you might even “buy the dip.” In other words, you might even take additional funds from the safe bucket and shift them into equities to reverse the asset class drift. Thus, regular rebalancing while using this SAA approach will generate the ooohhh and aaahhh-inspiring features often falsely attributed to the bucket strategy.
  • There is still a lot of confusion about how long stock market downturns have lasted historically. Some folks in the personal finance community declare, very confidently but incorrectly, that you need only a few years’ worth of safe assets because that’s the length of historical bear markets. Nothing could be farther from the truth! At the end of the bear market, equities are still severely underwater. If we define the length of the market downturns as the time until the portfolio reaches the initial level again, net of CPI inflation and net of withdrawals, we look at much more than a few years. As I pointed out in my 2019 post “Who’s Afraid of a Bear Market?” it can take 20+ years to recover from an equity market downturn if we account for inflation and withdrawals. No cash bucket will last that long, so the bucket strategy is only an incomplete hedge against Sequence Risk.

2) Glidepaths: I have already written two posts about glidepaths in my series (Part 19 and Part 20), so please check them out. My research found that in retirement, you want to start with a cautious allocation and shift back into a higher percentage for equities over time. This approach would help thread the needle by partially hedging against Sequence Risk in the near term but also providing enough growth in your portfolio in the long term to last a multi-decade retirement. Note that this “reverse” glidepath is the opposite of the pre-retirement asset allocation path, where you shift out of equities and into bonds on the way to retirement. See Part 43 of my series. Also note that the reverse glidepath is at odds with the approach taken by most, if not all, target-date fund (TDF) providers, which is one of the reasons I don’t recommend TDFs post-retirement. Also, see my post “What’s wrong with Target Date Funds?

My simulations show that the reverse glidepath can indeed increase your safe withdrawal rate. In other words, a glidepath is a “Sound Strategy” to deal with retirement risk. Unfortunately, it is also a gimmick. You will not be able to escape the effects of Sequence Risk completely. Even with the benefit of 20/20 hindsight, i.e., knowing which one of the glidepath specifications performed best in historical simulations, you would have been able to raise your safe withdrawal rate by only a fraction of a percentage point. For example, where a 75/25 portfolio had a failsafe withdrawal rate of 3.25% over 60 years, a glidepath going from 60/40 to 100/0 over the first 100 months of retirement would have raised the failsafe rate to about 3.47%. That is nothing to sneeze at because it implies an increase in the retirement budget by almost 7%.

So, if you called that 40% bond portion your “bond bucket” that you systematically depleted through the bear market, then your bucket approach enhanced your retirement strategy, but you cannot miraculously revive the 4% rule with just a glidepath.

3) TAA: The Holy Grail of finance is to tactically shift between the major asset classes and thereby beat the boring old SAA. The problem with this approach? It’s hard; if it were easy, everyone would do it. I worked in GTAA (global tactical asset allocation) for ten years at BNY Mellon Asset Management. I can confirm that timing the relative outperformance of major asset classes is not trivial, certainly not in the most comprehensive models like I worked on, covering all asset classes in all global markets (stocks, bonds, currencies, commodities). And not even in the most basic TAA challenge; timing the equity risk premium, i.e., allocating between risky equities and zero-risk short-term investments, e.g., money market, 3-month T-Bill, etc.

What’s my assessment of TAA, then? It is a sound strategy if you can add “alpha” (=uncorrelated excess return) to your portfolio. It is helpful if you shift out of equities right before the bear market and back into equities right before the next bull market takes off again. But it’s also a gimmick because this market timing ability is elusive to most investors.

How will the average retiree time the equity risk premium? Yes, I know, you only sell equities when they are up, you live off the cash balance when equities are down, and you may even buy the dips. That’s all great in theory but creates some severe headaches in practice. For example, suppose the equity drawdown is long enough and gradual enough. In that case, it might have been better to liquidate equities early when prices had only fallen moderately rather than at the bottom of the equity market. Also, what kind of signals will people use to determine if it’s a good time to liquidate equities vs. cash balances? Valuation signals based on PE ratios, the Shiller CAPE, etc., are notoriously unreliable as a short-term equity market timing signal. Trend-following/Momentum would have worked to a degree in some of the past bear markets, but it also tends to create many false signals. I have some simulations on how trend-following would have performed in safe withdrawal simulations (to be published in my SWR Series, stay tuned), and the results are not that great. Like squeezing a balloon, you alleviated some of the Sequence Risk in 1929-1932, but you aggravated the Sequence Risk during the choppy market post-1937 when momentum strategies got whipsawed.

In the best case, TAA will be a hit-or-miss for the average retail investor. In the worst case, you might consistently end up with significant deviations from the target weights and then panic-sell equities and replenish your risk-free assets right around the bottom of the bear market, exacerbating Sequence Risk. Yes, I know; in hindsight, it’s obvious when to de-risk and re-risk after seeing the asset returns. But getting this right in real-time is challenging. You’ll compete with professional asset managers employing sophisticated models, an army of PhDs, and experienced traders.

Another reason TAA is a gimmick in the retirement context is the sizing of your tactical asset allocation deviations from the SAA. Most retirees would not consider moving their entire portfolio back and forth between 100% equities and 100% money market funds. So, imagine you have your SAA equity weight at 70%. You are comfortable moving that weight +/-3%, so you’ll be between 67% and 73% equities, as in Fritz’s example above, where he allowed the equity weight to drift to 73%. If you add an annual 1% “timing alpha” and apply that to only a 3% portion of your portfolio, you will add 0.03% extra return to your portfolio. That’s better than nothing, but if your baseline SWR is 3.25%, your timing alpha of 0.03% would not miraculously raise your rate to 4% or more. And all that assumes you can add 1% alpha through market timing, which you can’t do systematically because if you could, you would have already done so during the accumulation period!

Fritz never directly endorsed TAA. Quite the contrary, in our post here, he explicitly rejected the TAA alpha generation idea. But I also wonder if Fritz wants to have it both ways because, indirectly, he certainly appears to talk about TAA market timing alpha. Especially to the casual reader here, some of Fritz’s phrases, like “buying the dip” or “SoRR insurance,” could be misunderstood as the Bucket Strategy miraculously allowing you to time the market and beat a passive SAA approach. Very often, the deviations from the simple SAA that are caused by a bucket strategy have the same mechanics as a momentum TAA approach. As I said before, even your SAA with regular rebalancing will already provide features that have a TAA flavor. Most notably, you may indeed buy the dip by just rebalancing back into equities during a bear market because of the drift in your asset weights. You may take withdrawals out of cash and bonds when equities are down. And take withdrawals out of equities if the bull market continues. But it’s all SAA not TAA. And it’s what my fixed-weight SWR simulations already assume – no need to add all those bucket strategy bells and whistles. 

Final Thoughts?


This has been a fun exercise, and I appreciate Karsten’s willingness to play along.  We’re both passionate about finding the best path through retirement and think about the topic a lot more than the typical retiree. It’s beneficial to have a forum where people with differing opinions can have a respectful debate on their positions.  Society seems to have lost that ability in many arenas, and we’ve lost a great source of intellectual growth in the process.  Hopefully, today’s debate has been of value to you, the reader.

I have the utmost respect for Karsten’s work and genuinely respect his clear mathematical intellect.  For the record, I’ll be the first to say that he’s the smarter man, and I’ve never suggested his work is anything short of excellent. However, with regard to my preference for The Bucket Strategy, it’s driven by my belief that the “typical” reader is seeking a methodology for managing the Withdrawal Phase that is relatively easy to understand and implement while providing some level of protection against Sequence of Return risk. 

A system must be implemented and managed to be effective, and I’ve found The Bucket Strategy to be a system that’s easy to implement and eliminates emotion from the handling of one’s personal finances.  It provides a cash buffer to ride out the down years and removes the urge to sell stocks during a bear market. In strong markets, it encourages the retiree to sell the winners and keeps them from getting caught up in taking on too much risk.  Is it the optimal solution?  According to Karsten, perhaps not from a strictly mathematical perspective.  But, when combined with the ease of understanding and implementation, it becomes the winner in my book. Is it good enough for you?  Only you can answer that question for yourself.  For me, it works, I’m happy with it, and I don’t hesitate to recommend it to any of my readers.

Finally, a quick reminder before I turn it over to Karsten for his final word – please take the time to leave a comment below with your thoughts.  Your comments will help determine where we go with this series in the future.


Let me wrap up by pointing out the obvious: Fritz and I have had a very relaxed early retirement. But our respective retirement success has little to do with the Bucket Strategy or lack thereof and has everything to do with lucky retirement timing; since our respective retirement dates in June 2018, the stock market has performed remarkably well. Combine that with a cautious initial withdrawal rate, supplemental income from our respective blogs, and other gigs, and it’s no wonder neither of us had to sweat the asset market volatility over the last 4+ years. So, the average reader here should take us pontificating about what worked for us personally with a grain of salt. Hopefully, Fritz would not claim that his retirement success is solely due to the Bucket Strategy and that he’d be destitute if he followed a naïve passive SAA approach. And likewise, I’m not claiming that my retirement would have failed if I had followed a Bucket Strategy.

While a glidepath approach has the potential to hedge against Sequence Risk, many other Bucket Strategy features are mostly ineffective when compared to a passive SAA approach. And with ineffective, I don’t mean that the Bucket Strategy is necessarily inferior all the time. Instead, it’s a hit-or-miss kind of deal. When it works better than the SAA, it’s not because Fritz is so much more brilliant than I am. And when the Bucket Strategy doesn’t work, it’s not because I’m brighter than Fritz. The bucket strategy’s outperformance or underperformance is due to good or bad luck. It all depends on how well a momentum TAA strategy works at the time.

Why do I even care? One can make the case that a Bucket Strategy helps skittish investors overcome their fear of withdrawing funds from their retirement portfolios. That’s the sentiment if you talk to financial advisers; a bucket strategy is mostly a gimmick, window dressing, and a psychological crutch to get clients comfortable in retirement. And it’s easy to explain.

Well, I beg to differ. First, folks in the FIRE community are sophisticated investors. They can handle the truth. And it’s my job, as an educator of sorts, to explain Sequence Risk. Studying my work and using my simulation toolkit (see Part 28 for the link) has given many of my readers the confidence to retire.

Second, I am ready to admit that this discussion is a bit of a turf war for me. As a thoughtful retirement risk management researcher, I’ve built a reputation and a brand name in the personal finance community. If Fritz wants to use the bucket strategy as an alternative way to reach similar conclusions as mine, then that’s fine with me. But if folks misunderstand Fritz’s approach as meaning that the Bucket Strategy is good enough at timing the equity risk premium that you can now safely ignore my work, well, then we have a problem. Of course, that’s not what Fritz is doing. He and many other FIRE bloggers and podcasters have graciously endorsed my work. But others in the FIRE community have a nonchalant attitude toward Sequence Risk. None of their simple “solutions” to Sequence Risk hold up to scrutiny.

So, to close, I hope the readers enjoyed this discussion. If people expected a bloody cage fight, you might be surprised that Fritz and I agree on more things than we disagree.

Your Turn:  You’ve heard what we’ve had to say, now it’s your turn.  Who “won” Round 1 in the debate? Is the bucket strategy a cheap gimmick or a sound retirement strategy?  Why?  Also, what questions do you have that you’d like Karsten and Fritz to address in Part 2 of this series?  Finally, if you’re not already following Karsten at Early Retirement Now, go over and sign up for his emails now.  Our second part of this series, with answers to your questions, will be published there in the coming weeks.

At 5,000+ words, I warned you this one was a doozie…


  1. Thanks for the interesting discussion.

    1. While the asset allocation of both approaches can be identical initially, I wonder what the bucket strategy does to the asset allocation in case the value of the portfolio changes by, for the sake of argument say, -50% or +100% over time, in real terms. My impression is that SAA would stay at, say 70/30 as a percentage of CURRENT portfolio value, whereas the bucket strategy would, over time, aim at fixed 10 years of expenses, so e.g. 10 times 3% of INITIAL portfolio value and hence, starting with 70/30, becomes 40/60 or 85/15 after a -50% / +100% change in portfolio value. On the other hand, there’s the bit about considering asset allocation when refilling bucket 1. Perhaps this aspect deserves some clarification?

    2. Perhaps slightly off topic, SoRR is often discussed as a problem particularly early during retirement. Is it fair to say that SoRR going down over time is largely due to the portfolio growing so much that withdrawals as a percentage of the increased portfolio value drops, say, significantly below 3%, in particular when looking at a 50+ year retirement?

    1. 1: Good question. That depends on the exact parameters of the Bucket Strategy. If you have good returns early on, you might let the equity portion drift up. It depends on what kind of rebalancing rules you set.
      2: SoRR becomes less of a problem if you’ve had good returns in the beginning and your effective WR drifts down. But make no mistake SoRR is always a problem. See Part 38 of my series

    2. Thanks for the comment, Blubber. Karsten and I are currently working on Post 2, and I’ve added some specific examples of how Asset Allocation and the refilling process work together, as well as the impact of Asset Allocation over time using the Bucket Strategy (in theory, cash decreases as a % assuming portfolio growth exceeds annual spending/SWR). Watch for it on Early Retirement Now in the coming weeks…

  2. Excellent work! I’ve been wondering when this “shootout” would finally take place 🙂 Having had the good fortune to speak with you both on our own show, I know how thoughtful (and passionate!) you each are about the work you put out. This reader is not at all surprised that “[Karsten] and [you] agree on more things than we disagree”. Personally, I’ve found tremendous value in what each of you share with the FIRE community and I’m super glad for your efforts. Keep up the great work!

    1. Thanks, Jason! Yes, I want to stress that we’re 99% on the same page. But it was good to keep the “shootout” and “cage match” aura beforehand to get readers excited! 😉

      1. I don’t know, Karsten…that sounds like a cheap gimmick to me. Or, perhaps, a sound strategy? Wink.

  3. My spending/retirement strategy is similar to the bucket strategy except I completely skip bonds and do not try to spend evenly year in and year out. Since income is variable, it’s easy to make spending variable. The cash bucket remains the same – during good times I keep it at $250k and reserve the right to change this target. During bad times I pull from the cash bucket instead of withdrawing from retirement which is entirely stocks to avoid selling when prices are low.

    In good times, I spending is restricted to the gains from the previous year, capped at the marginal tax bracket rate I want to stay under (24%, avoiding the big jump to 32%). In bad times I spend from the cash bucket, but tighten down on spending to necessities (food, utilities, property taxes, insurance). I increase Roth conversions to take advantage of low stock prices to get more bang from the buck. When bad times turn good, first replenish the $250k, then open up the purse strings to resume spending on anything significant like buy a new car, add solar, build a new outbuilding, go on a big vacation, etc.

    I hope to go from mostly traditional to all Roth before I hit RMD age, then I can go nuts just spending the growth. I am 56 years old and plan to have 30-40 more years of growth ahead of me, so i’m riding the same horse that got me here. I see no reason to spend down the retirement account. I’m trying to hover around this line in the sand that I’ve drawn – my current net worth. In really good years I won’t be able to spend it all and it will grow. With multiple really bad years, we might meander below that line in the sand, but subsequent good years should replenish it

    1. “Most of us don’t have extra income from podcasts”. Not the most convincing way to start a persuasive topic. Seemingly resentful. Though this is true many of us supplement our incomes throughout our lifetime and have part time work in retirement.

    2. Good point: we haven’t talked about tax planning. That’s separate and needs to be custom-tailored.
      Even though I’m not a huge fan of TAA and momentum strategies for market timing, there is certainly room for tax planning in conjunction with past market returns, for example, in the context of Roth conversions, tax loss harvesting, tax-gain harvesting, etc.

      1. I don’t view tax planning and withdrawal strategy as separate. In fact, I incorporated it in my withdrawal plans. To make things simple 2013’s 24% tax bracket for a married couple is capped at $364,200. In a good year I might withdraw $264k and Roth convert $100.2k. In a bad year I could withdraw $100k and Roth convert $264.2k. Or pick another numbers depending on what we feel we need to do for the year, but staying below that punch in the gut if you exceed the $364.2k and get hit with an extra 8% above that amount.

        Some people’s numbers could be smaller, but I find it very difficult to stay in the 12% tax bracket, and the difference between 22% and 24% is negligible.

        1. I’m with you, LLn. I’ve been converting Roth to near the top of the 24% bracket. As I wrote in The New Tax Law Loophole when the new tax law came out, it’s a golden opportunity for Roth conversions, and subject to expiration in 2026. Yes, it drives up short term spending to pay those tax bills, but I’m expecting tax rates to increase in the future so feel it’s a wise move in the current environment. Bear market actually makes it more attractive (more shares for same $ amount converted). A bit off topic for The Bucket Strategy debate, but an important element in retirement planning, for sure.

  4. 1.) Is bucket #1 always replenishing or do you wait for it to get depleted before refilling?

    2.) How do you use bucket #3 to fill # 2?

    1. Melissa, I address the specifics of the refilling process in How To Manage The Bucket Strategy, would encourage you to read that for the details. In short, Bucket 1 is kept full in a Bull Market and allowed to drawdown during a Bear Market. As for your second question, in reality either Bucket 2 or 3 is used to refill Bucket 1, depending on which asset class has the best returns. The balancing between Buckets 2 and 3 is driven primarily by rebalancing Asset Allocation to target %’s.

  5. First, I have to acknowledge that I have been a follower of Fritz for about 5 years and have never heard of Karstan before this discussion. I have heard a lot about the bucket strategy and it is easy to understand and follow. Reading Karstan’s information is like trying to read/study college level information when I am still in 9th grade. I understand sort of – but obviously have some significant studying to do to understand and grasp his terminology. It sounds interesting and well worth investigating – but I would still recommend the “bucket” strategy for people who are just getting into investing. We understand “buckets” – not so much “TAA” and “SAA”.
    I can easily see both working well –
    1) Fritz
    PRO – easy to understand and follow with minimal effort and a lesser degree of investing expertise.
    CON – agree with Karstan that it can depend somewhat on timing of retiring and a bit of luck
    2) Karstan
    PRO – more knowledgeable about investing and I can see it working well.
    CON – requires more in-depth knowledge and understanding of investing – many people would not want to spend the required effort and time to become this knowledgeable – I can see many people throwing up their hands and turning their money over to a “Manager” – unless, like they are investment geeks like most of us following these discussions.

    Bottom line, love this discussion – it has certainly made me think and pointed out areas that I didn’t even know that I didn’t know about. LOL

    1. Thanks. I don’t think you have to perform the research on the level I do to benefit from the results. You also fly on airplanes without knowing all the details of airplane design. It’s enough to know that I did it and then just run your retirement portfolio following a simple SAA approach, which is even simpler than the Bucket method.

      1. I went to your site Karsten, and have to admit that I am even more lost than I was before. A tremendous amount of acronyms that I have no idea what they mean which makes reading like trying to read a foreign language. Need a dictiionary to find out the meaning of the acronyms. LOL

        I’ve tried to find a good intro starting point on your blog – but even the “start here” has me feeling like I have flunked out of 9th grade and I am back to third grade!
        Would love a recommendation on where to start on your blog.

        1. V Michalczyk, you’re not alone, LOL.
          A few years ago I heard Karsten on a podcast and was interested in finding out more. Unfortunately, I found the writing impenetrable – and I’m an English teacher.
          Of course, Karsten can write however he wants – it’s his blog, after all! He’s doing something right – his blog is very well-known. His readership must really love numbers and complicated-sounding formulas and graphs.
          It’s a shame, though, that the way the information is presented appears to drive away some readers.
          But that’s ok, because we have Fritz and his buckets!
          For me, the bucket strategy is more effective because it’s far easier to understand and put into action. If a person can readily understand a concept and it makes sense to them, they’re far more likely to put it into action.
          For example: I was ‘lucky’ enough to retire 2 years ago, just before the market decline, and I’ve modified the bucket strategy to supplement bucket 1 with some casual work, just in case the market’s down more than 3 years. Sequence of Returns Risk bothers me, so I’m stretching out bucket 1’s contents, just in case.
          If I didn’t understand the buckets, I’d be a lot more worried.

          1. “For me, the bucket strategy is more effective because it’s far easier to understand and put into action…”

            Thanks for highlighting one of my key themes as to why I think the Bucket Strategy is preferred, Frogdancer!

  6. Great conversation. It seems to me that a key differentiation between the two approaches lies simply in who is managing retirement assets. Fritz is a DIY manager and most of his readers, I suspect, are also in that camp, and the bucket approach lends itself well to that population. Karsten is a professional planner who effectively and actively guides his clients through their retirement funding journey. Karsten hints to the fact that most anyone reading this “debate” has already been on a saving and planning journey and is ahead of the game so the ultimate failures or successes of either approach is thankfully muted.

    1. No, it’s the other way around.
      I propose a passive, hand’s off asset allocation (SAA, maybe a glidepath).
      Fritz uses a lot of bells and whistles and intentional deviations from the passive approach.

      1. Indeed how can you time the markets……. was trying to do some myself recently…. DOH!
        Absolutely love this post. I keep telling all my co-workers. The most important thing they need to understand before retirement is Sequence of events risk.
        None go on to understand it.
        DB to DC is a disaster for most retirees. So if they can do SSA setup properly then must actually be the most important thing.
        Cheers Karsten

  7. Very interesting, intellectual and respectful financial discussion…
    My two-cents into the conversation!

    I enjoy a good workout in gym since I was 16 years old…
    the reasons I enjoy working out has varied with time (ENJOY is the key word here).

    Since “monkies see monkies do”, I the “monkey” has adopted many and many workout routines over the years.

    The workout routines I had adopted are directly from gym members whom were kind enough to share without any financial gain (FINANCIAL GAIN is the key word here)…

    And most importantly, I was able to verify in real-time these routines that worked for them…

    As said earlier, I enjoy working out therefore when I adopted someone else routine…
    I worked harder than the average gym members and achieved the results better than average (my own bias opinion).

    However, I noticed that the achievements are mediocre at best when comparing to the owners of the routines…

    As a trained engineer, I analyzed the results obsessively and came to the understanding…
    I focused too much time on looking at the others and not enough time to look inward at myself…
    to gain an understanding of my strengths and weaknesses.

    As said, all the gym members that I adopted the routines from were sincere and kind in sharing without any financial gain…
    And it was my short coming in adoption the routine in its entirety.

    The wiser strategy should have been…
    Modify the routine to fit your needs and if you are proud of the results after 30 years (30 is the key word here)……
    Named it “TheEngineer” and pay forward to others.

    The Bucket Strategy, SAA, GP P and TAA are all great financial strategies or (TheEngineer 90/10 equity and cash works for 9 years thus far and it needs 21 more years testing)…
    1. Pick the one that you ENJOY the most for the above average result
    2. Modify the strategy for the better you

    Thank-you both of you for the passion and the courage in sharing your game plan with us for very little FINANCIAL GAIN!

    1. Thanks! All good points. I can certainly see the differential impact of different routines on people in the gym due to their idiosyncratic physiological traits. Analogously, I propose a more custom-tailored SWR analysis because people of different ages, life expectancies, supplemental cash flows, etc., need different SWRs.

      But I also concede that no matter your idiosyncratic parameters, tactical asset allocation (whether intentional or unintentional) is not useful. We all face the same asset returns and lack the timing ability.

  8. Cheap gimmick. Why? Because it’s just another name for market timing. Any strategy that makes investment changes based on current market performance is, by definition, market timing, which is possibly the most discredited strategy in the investment world. For instance, is now a good or bad time to sell stocks or bonds to refill the cash bucket? It’s a bear technically, so no. But stocks are way over valued based on historic price to earnings metrics, so yes. Talk about a stressful plan. You will constantly be faced with conflicting metrics to base decisions on. That’s a recipe for discontent. No thank you. I just sell a little bit of everything on autopilot and sleep extremely well.

    1. Thanks for the comment! You eloquently boil down in a short paragraph what I tried to pontificate about in 1000+ words! 🙂
      The challenges in market timing are precisely as you describe. You often get conflicting signals. For example, right now equities are still in negative momentum (200/50-day crossover), but with positive short-term momentum. Valuations look better compared to one year ago. But valuations also look expensive when compared to longer-term averages. Which one do we follow?

    2. Interesting. When Fritz refills his Bucket 1 during at some point in a bull market you consider that market timing? Even DCA (Dollar Cost Averaging) could be seen as a form of “market timing”. More shares are purchased at times the market is down. Fewer shares are purchases at time the market is up.

    3. “I just sell a little bit of everything on autopilot and sleep extremely well.”

      Careful, Steve. If you automate it, won’t you be selling more shares when the stocks are down (to generate the same $ income)? That’s the reverse of DCA and will expose you to SORR, I believe? At a minimum, I’d encourage you to look at your Asset Allocation as part of your decision on what to sell? That’s essentially what I do when I refill Bucket 1.

  9. I view this debate as a reflection of both of your backgrounds. Big ERN comes from an institutional money mgt perspective where asset owners tend to have infinite lives and where portfolios are, for the most part, managed by professional managers monitored by consultants. There is a need or desire to squeeze as much performance as possible given the level of risk. The risk that an institutional asset owner can take is often greater than the risk that an individual can take on. Why? A pension fund, for example, can go back to the sponsor and get a higher contribution (not a fun request, but it’s done all the time). A retired individual does not under most circumstances have that ability (no more w2 + bonus, unfortunately). In my own research, I have concluded that the bucket strategy for individuals comes at a cost (less efficient portfolios from a risk/return standpoint) but, and it’s a big but, it allows individuals to sleep better because they are able to compartmentalize their assets to ensure that the money they need over the short-term (say 3 years) is going to be there regardless of what the capital markets do. That’s a huge relief. The bucket strategy needs to be judged based on BOTH its investment merits and its behavioral merits. An experienced investment professional does not need the bucket strategy because they can take their asset allocation and mold it to their cash flow requirements, but a DIY investor will almost certainly prefer the certainty of having 3 years in the bank and not care as much about whatever they are leaving on the table (in terms of portfolio efficiency) over a longer horizon. My perspective is that of having been a professional money manager (including managing tactical asset allocation strategies for pension funds) and a wealth manager/retirement coach (in the last 10 years) dealing with individuals. Not everything humans do is about getting the perfect solution. Close enough is often good enough especially if you want to enjoy your life in retirement! I think it’s a draw and you should share a beer together.

    1. “The bucket strategy needs to be judged based on BOTH its investment merits and its behavioral merits.”

      Thanks for reiterating one of my main points, Eric. And, I agree, we should share a beer together. In fact, we should share two. In the interest of maintaining the approach used for this debate, I’ll buy the first and Karsten the second. In fact, we’re spending a week together in Ecuador (Join Us!), so we’ll settle the tab there…

    2. I would offer the same reply as for Liz: I’m not particularly eager to reaffirm people in their behavioral biases. It’s my job as an educator to point out the numerous problems with the “mental accounting” behavioral bias.

  10. Great discussion guys. I admit to likening the simplicity of Fritz’s approach, but I’ve read his blog much longer. I am sure it is a gimmick, in that financial advisors on the radio push their own bucket strategies. But I can appreciate the value of a proper gimmick. One value of the simplicity is my ability to explain it to my wife who is definitely not a numbers person. SORR is my biggest concern, as economic conditions at my 2020 retirement are eerily similar to those in the late 1960s, which is the only subsequent 30-40 year historical period my plan would have failed.

    One aspect of my portfolio is a bit different. I follow the AAII level 3 investing approach with about 1/4 of my long term bucket. This approach says the market “insurance” bought by holding bonds costs too much – essentially outsized performance value of 100% stocks (which includes about 10% REITS) overcomes the downside protection provided by holding 30% or so in bonds. I’ve done this for about 3.5 years – some wild negative swings – but it seems to be holding up. Even with the ugly 2022 market the overall account remains significantly up versus a balanced approach. I can’t see withdrawing regular spending cash from this approach though unless I no longer value my sleep.

      1. Would you say the SAA method is the same as what Vanguard calls the Dynamic Allocation Method?

    1. “One value of the simplicity is my ability to explain it to my wife who is definitely not a numbers person.”

      Good point, KevG. My wife also takes comfort when I tell her we have 3 years in cash and don’t have to stres bear markets. She doesn’t care to know the details, but appreciates the reassurance.

  11. I like analogies and one that comes to mind is this, instructions for changing a lightbulb;

    Fritz – remove old bulb install new bulb

    Karsten – measure size of room, determine light output requirements, examine electrical capacity of circuit, evaluate multiple lighting solutions ….

    I’m a fan of KISS. Bucket plan is good enough for me. Maybe not optimized to 99th percentile but I hope to spend time in retirement doing something other than analyzing TAA, SAA etc. more power to Karsten and his slide rule calculations. I see he enjoys that and happy he shares his knowledge. But I’m not enough of a math nerd to fully appreciate all the valvulation

    In the end regardless of who changed the lightbulb, if the room has light, only a few people would notice or appreciate the difference.

      1. Both of you keep doing what you’re doing! Maybe Karsten can refrain from labeling a strategy he would not use. My guess is most retirees “just change the light bulb”. But more power to those who spend a week optimizing the replacement light source.

    1. Very accurate description. But notice that it’s the other way around.

      A simple SAA approach is like changing the light bulb.
      The bucket approach with all its bells and whistles is equivalent to overthinking.

      As I mentioned in my other comment above to “V Michalczyk”, I still favor the simplicity of SAA over the convoluted Bucket Strategy. So, the SAA is simpler for the end user. You don’t need to replicate my research to follow my recommendations. You don’t have to study aircraft design to fly in one either.

      1. Nice twist, Karsten. I suggest we include some discussion on this comment in Part 2 of the series?

      2. Sorry Karsten, I have spent about 8 hours today trying to educate myself as to what you are talking about. After 8 hours of researching and reading about SAA, I couldn’t tell you what it means or how to use it even to save my life.
        On other hand, I can tell you in 5 minutes the logic behind the bucket theory.

        I spent 28 years in the military before retiring. I know that when I talked with my family and friends outside the military, they would constantly stop me and ask me to speak english. I was so used to military terminology and acronyms, that I never realized how much we had our own language.

        The SAA strikes me the same – So – if you are saying that SAA is the true “change the light bulb” method, I would like a simple 1 paragraph explanation of how I could use it. Then I might consider it to be the simpler method. Not that either I think either is better – rather which one can I understand and thus use effectively.

        1. If you understand what Fritz is doing, you take the first step, which is the SAA. And that’s all. You do the first simple step and stop and skip the complicated part with how you shift back/forth between the buckets.

    2. Could not agree more! I found myself easily understanding Fritz and having my eyes glaze over when reading Big ERN. Keeping it simple is typically the best solution.

  12. The biggest issue I have with how most bucket strategies are “sold” is how they encourage tactical asset allocation (TAA). As Karsten points out, most people are not good at interpreting market signals. How much does the market have to go up before I take some money to refill the cash bucket? How much does it have to go down to stop refilling the cash bucket? What happens when the cash bucket runs out because I didn’t set those upper and lower bounds very well? Advocates of bucket strategies are very good at telling you why they are good, but not very good at actually giving specific implementation details.

    The SAA is nice because it removes one level of decision-making that has to be done when doing retirement withdrawals. Equity markets are up? You’ll withdraw most of your money from equities. Equity markets down? You’ll withdraw from bonds (if they are not down as much) or from your shorter term instruments (cash, T-bills, high-interest savings). You put your balances into a spreadsheet and it can help you calculate how much to take from each. You still have to worry about which accounts to use (those pesky tax brackets). Fritz might argue that his spreadsheets also tell him what to withdraw. However, he has to also make a decision about where the market is and where it appears to be going.

    Retirees already have to worry about which accounts to take money from (taxable, tax-deferred, tax-free) to manage tax brackets and things like Medicare surcharges and taxation of social security. That’s complex in and of itself. Tracking how the market is doing adds another level of complexity. As Karsten says, adding that complexity might be better, but it might not be. In investing terms, you might call that uncompensated risk (extra effort with no expected (on average) benefit).

    1. Exactly! Very good summary of my points. And you also outline how my approach is actually the simpler method. You take out the hidden TAA and thus take out emotions.

  13. Aloha Fritz and Karsten,

    While reading this in my wintering home in FL, I feel like either approach would work for most folks. I can’t endorse either as best.

    I feel like a person should obtain enough cash flow to pay all bills, including discretionary expenses, for your lifetime. Not that hard to do. Of course, most couples don’t have 2 pensions. And no, my wife and I do not have side gigs or jobs.

    We could invest 100% of our portfolio in equities, but choose not to. We don’t, as we enjoy giving and having an ample amount in cd’s to never worry about a down market of 5 years. If all bills are paid by your (4 or more paychecks, without drawing SS yet)lifetime guaranteed cash flow, then your worries are over financially. We will always strive to improve on our soft issues in life. Right Fritz? 🙂

    Great debate btwn 2 passionate people that want to help people on financial issues in retirement. Both of you keep on….and thanks!

    I strongly encourage everyone to get their cash flow levels up, high enough to remove any stress in meeting your monthly bill obligations. Talk about no stress of SOR. My take on it, anyway!

    Blessed and grateful, Steve

    1. The reason there isn’t a better approach: both approaches should – on average – yield the same results. So, pick the one that you are comfortable with.
      Also, I’m happy for you and your retirement. You’re obviously in a good position, having more money and cash flow than you need. But many folks, especially those who retire early, sometimes cut it a bit tighter, and they may need some more guidance on SWRs and asset allocation decisions.

    2. “I feel like either approach would work for most folks.”

      Fair point, Steve. In reality, we’re probably splitting hairs. The important thing is to: 1) make sure you have enough $ to retire, 2) have a plan in advance that you’re comfortable with, and 3) be consistent in your implementation.

  14. Thanks Fritz and Karsten, I enjoy both your work and actually use both of your strategies. Reading this has confirmed my thinking and I think you both won. The readers are certainly winners! I’m 64 and have the next 5 years covered with a ladder of treasuries/CD’S/MYGA’s/High Yield Savings returning from 3 to 5.8%, so this bucket one is actually getting decent returns. The rest of my fixed income is in the Vanguard total bond market. I started retirement in July with 50/50 and it has glided to 55/45 and am still thinking of glide path boundaries for the future. Once we hit 70 and start taking SS, demands on the portfolio will not be that great so we may let the stock portion grow. Thanks for all you do. This was very helpful. Don

  15. No real wrong answers here, just personal preference. Once I retired (early 2022), I set up effectively a 2 bucket system. Bucket 1: 10 yr Bond Ladder which includes about 18 months of cash; Bucket 2: Portfolio of various stock ETF allocations which are rebalanced annually (a version of Paul Merriman’s approach). I would be curious to see Karsten’s research on stock recoveries as most of mine showed markets hitting new highs within 10 years, with perhaps a couple of exceptions. In those rare events, and frankly all market events, I believe we all (hopefully) have levers we can pull which might aid the situation (i.e. reduce spending, part time work). For me, the bucket approach gives me peace of mind 10 years worth of spend is banked and allows me to be more aggressive on the equity side. All of this is probably helped by the fact my planned spend is highly discretionary and my WR is sub 3%.

    Enjoying the debate! Thanks fellas

  16. I have my own “bucket strategy.” I believe in investing in things that pay me monthly. So I have set up my bucket strategy to start paying me partially BEFORE I retire. This includes investments in oil wells, real estate, advertising campaigns, and forex auto trading bots. With the money that I earn from these entities, I fund my index fund bucket, my whole life policy (don’t be a hater), a cash bucket, and more oil wells and real estate funds. When retirement hits, I plan on using whatever buckets are producing, knowing that I have a cash bucket or other buckets to draw from if I need them. I believe in owning as many assets that pay me monthly- if they continue to produce revenue, I won’t have to tap into any of the investment buckets as my cashflow will sustain my living expenses. My plan is to retire in 2033, so time will tell if my own bucket strategy holds up. Thanks Fritz for all you do!!!

  17. Fritz/ Karsten-

    Thanks for taking the time for the compelling debate !
    As someone with about 7-8 yrs to go prior to entering retirement, all your work on this to coach , mentor & educate is certainly appreciated.

    My thoughts are that part of the great news here would be that neither strategy would be in the category of a ‘bad math / arithmetic decision’ but moreover which one affords the desired measure of peace about future finances.

    As many DIYers who may dip his/ her toe into the various ‘buckets’ ( no pun intended as Karsten noted ) of different ideas promulgated by the likes of Bogle/ Dave Ramsey / Bucket Theory / Couch Potato investing , etc ; the fact that many of us are acting / planning / studying with intentionality probably affords us some measure of benefit or advantage to the masses.

    As a long time Fritz follower & Bucket advocate, an additional key value to the Bucket Strategy is the ease of explaining it to a spouse / partner who deserves a quality, efficient edited version of the plan explained-easier to wrap our heads around ( maybe that’s where the ‘gimmick/ mind trick’ thoughts come in)

    Thanks again for your debate to keep us thinking !
    Best regards- David

      1. That’s the problem. YOU found it easier to explain. Good for you.

        But a lot of people can’t understand your explanation, yet have no difficulty understanding the bucket strategy. This shows that there’s an inherent problem with your approach. There’s no point in having a superior game plan and wanting to share it if only Maths aficionados can follow your reasoning.

        I’m a teacher. Explaining a concept in only one way excludes those people who process information in different ways. In my profession, we have to differentiate our approach to ensure that everyone in the class understands.

        The way I see it – you may have a stellar approach to all of this – but it’s incomprehensible to all except those with a Maths brain.
        Fritz may have a slightly inferior approach… but who knows? For many of us, it sounds logical, reasonable and uncomplicated.
        The “bells and whistles” stuff is unwarranted and diminishes your stance. My advice would be to stop saying it. Honestly… it’s a bit sad.

  18. Can’t we all get along? Haha… As others have stated and as Ern himself did, both of you are doing pretty darn well and some of that surely is due to retiring in the raging bull market that you did, although most is due to your prep. For me personally, I like to keep things as simple as possible, even if that means sacrificing pure optimization. For investing in general if I could get an additional 1 or 2% more by picking stocks than I could by just buying VTSAX BUT that also meant I’d have to spend dozens of hour pouring over company reports and financials – then count me out. My time is more valuable and I’d rather keep it simple. That said for retirement the bucket strategy to me is a nice way to do things, but that doesn’t mean I can’t also learn tweaks and tidbits from Ern’s knowledge and methodology.

    Now buy each other a beer!

    1. Thanks, Dave! If you like simplicity, go for the SAA and forego the Bucket Strategy then.
      And no worries, Fritz and I will find a way to buy beers for each other. October this year in Ecuador at the latest! 🙂

    2. “For me personally, I like to keep things as simple as possible, even if that means sacrificing pure optimization.”

      I’m 100% with you on that thinking, Dave. The benefit of a low SWR (I target 3.0 – 3.25%) is knowing we have some cushion and don’t have to spend the extra time to optimize everything. I think either approach works, it really comes down to a personal preference. That’s why it’s called “Personal” Finance, right?

  19. Both approaches are viable depending on your situation. I was a DIY’er for 30+ years and began using the bucket approach as it was easier for me to manage. When my wife’s mother passed last year she became concerned about her situation when I passed. So we interviewed and began working with a local CFP firm (multiple staff and low costs). They only use Total Return.

    I would recommend looking up the Michael Kitces articles on the Bucket approach (“” – His explanation… planners can use Total Return but present as “buckets”. These articles satisfied my concerns.

    Know your spend plan, be flexible and include the “Oops” factor. Ultimately, one should use what you are most comfortable with as we should enjoy retirement and not fret over the details.

    1. Thanks for sharing Kitce’s article, a great read for anyone interested in the topic. No doubt, the rebalancing is the part that is, ultimately, the most important. Both Karsten and I incoroporate rebalancing in our approahces, and in the end that’s probably what really matters.

  20. Wow. What an awesome debate. I love it. When I retired in 2016, Mrs. Groovy and I started out the Fritz way with the bucket strategy. But then we ended up going the Big ERN way. And the reason why is because of Obamacare. Let me explain. As long as my AGI is no more than 200 percent of the federal poverty level (FPL) for a family of two, Mrs. Groovy and I get zero-cost insurance premiums under Obamacare. One way we lower our AGI is to have a high-deductible health insurance policy and contribute the maximum amount to an HSA. The other way is to suffer capital gain losses. Now, no one likes capital gain losses, but if you combine capital gain losses with HSA contributions, you can lower your AGI enough so you can make sizeable Traditional-to-Roth conversions and not adversely affect your Obamacare subsidies. And that’s precisely what Mrs. Groovy and I have been doing. We’ve been selling bonds at a loss to increase the spread between our AGI and the 200 percent FPL and thus make pain-free Traditional-to-Roth conversions. We get hit with income taxes on those conversions, but we don’t get hit with an Obamacare subsidy reduction. This is what makes personal finance personal. I wanted to go the Fritz way, but the Big ERN way makes more sense right now. I suppose when Mrs. Groovy and I are both on Medicare, we’ll return the Fritz way. Again, awesome debate guys. I look forward to the next installment.

    1. Great comment, Mr. G, and a perfect example of how individual circumstances must always be considered when implementing a strategy. You’re a smart guy, enjoyed reading how you’re “threading the needle,” even if it means you betrayed my approach (for now).

    2. Yes, that’s a really great point. Asset allocation and asset location need to be considered. Sometimes the optimal tax strategy brings you closer to my SAA method. But I can also envision scenarios where you want to let the gains run and not rebalance. That would look more like the bucket strategy again.

  21. This is definitely a snow cone stand debate: Choose your flavor.

    I am a practicing CFP, and the average client I work with will retire on $2M-$3M portfolio (not including other income streams). We both have clients bucketed and monitor withdrawal rates. Buckets make sense to clients. What Karsten does appeals only to a very small percentage of people in my experience, usually technical or finance professionals who find such considerations an enjoyable past-time.

    What’s missing here is any sort of relevant context about what the numbers mean. For example, some of my clients use their withdrawals as padding for fun items, while others use them for necessary living expenses. That 3% or 4% withdrawal has a very different meaning in those contexts. Baseline income matters a lot. Also, realistically, most successful clients have other streams of income: annuity, pension, consulting, rentals, etc. Those make a huge difference and again change how the money withdrawn from a portfolio is used.

    There is research that backs up the behavioral aspect of the bucket/silo strategy. In fact, some research shows that most folks adjust their baseline spending to their guaranteed income and use portfolios for lifestyle enhancement purchases. I have almost no one who lives totally off SWR. Again, these mostly aren’t early retirees. However, most people who pursue financial independence are working outside a very technical goal and want freedom from worrying about money (or even thinking about it).

    In my experience as long as someone’s expenses are under control and they have no debt we can work with any amount of money because the psychology is under control.

    As Morgan Housel noted in The Psychology of Money, something can be technically true but contextually nonsense. (This is generally my opinion of Karsten’s argument again the emergency fund, as well!).

    So, the more broadly applicable the withdrawal/money management strategy is to most people, the more useful and relevant.

    What could enhance this debate are practical examples using realistic budgets. Frankly, my average client budget is $8K to $12K a month.

    Thanks you all!

    1. Exactly. Human behavior can naturally adjust spending up or down depending on financial conditions. This concept of pulling some fixed percentage per year and blindly heading towards a cliff if you didn’t save enough is not how people function

      1. Good point, and something I should state: I definitely support the Flexible Spending Strategy REGARDLESS of how you structure your retirement paycheck. Every year-end I “run the numbers” and compare my SWR for the upcoming year based on “12/31 Retirement Assets X 3.0, 3.25, 3.5, 3.75 and 4.0%.” I then determine my spending rate for the following year.

        1. Yep, in a sense “re-retire” at the end of each year. That’s probably as good a “check” as any. I have yet to meet someone who blindly follows the “4% Rule”.

    2. I don’t manage people’s money 1-on-1, but I can imagine most clients don’t even want to chat about the ins and outs of money management but need some handholding and a trusted party to chat about finances and their personal life. So, I hear ya!

      As a blogger, though, I have the luxury to inform and educate my readers about those ins and outs. That is my niche. It’s not for everybody, and I have only a small following as a result. But people appreciate that I tell them the unfiltered truth and mathematical backing behind it. Sometimes it conflicts with the CFP curriculum.

      I actually view it as my job to point out the “technical truth” and the “contextual nonsense” behind all the behavioral biases. One prominent bias is “mental accounting,” and both the bucket strategy and the emergency fund fall into that “bucket.” And it appears that RIAs even endorse this behavioral bias. Nowhere else in the world would it be acceptable to reaffirm irrational and bad behavior and refrain from telling people the truth. Doctors don’t tell people it’s OK to smoke if that feels good. You tell them the truth. Sometimes the truth hurts, and sometimes it takes longer to tell the truth. But unfortunately, in money management, we have Morgan Housel and his followers who believe there is a conflict/contradiction between “technical truth” and “contextual sensibility.” There isn’t. I tell people what is technically the truth and, at the same time, is contextually sensible.

      It reminds me of my old post “Good Advice vs. Feel-Good Advice“:

      1. This is the real bottom line in this discussion: what is correct versus what feels good. A lot of things in life are like this. You will never convince someone to abandon a belief that feels good in favor of one that is right because human beings can rationalize anything to protect themselves psychologically.

        I can’t get in anyone’s mind, but I suspect the bucket system makes people feel (to a greater extent than SAA) that they are in control despite facing unknowable market returns.

        A lot of people prefer driving (feel in control) a car over flying in an airplane (no control) even though an accurate assessment would be that flying has tremendously less risk of dying than driving.

    3. Excellent comment, Liz. Thanks for bringing some “real world” perspective into the discussion. I think the focus on the behavioral aspects is a critical element. And…thanks for bringing up Morgan Housel – he and Ben Carlson are my two favorites writers in the space.

    4. Thanks, Liz. While I enjoyed reading this debate and was overloaded with some of the financial complexity, your summary of the situation for most retiree candidates makes sense. Since I’m not a financial guru and don’t want to obsess over optimization, I appreciate the psychological simplification of Fritz’s bucket approach. Previously, I have worked with financial advisors during the accumulation years and now I have two advisors (Ameriprise and Fidelity). Also, my wife is working with a Fiduciary. Obviously, we need to simplify over time and do some consolidation. I’ve recently retired at 65 (12/22) and just started experiencing the reality of creating a paycheck from a cash bucket and monitoring monthly expenses. We have some baseline income from my wife’s SS and my pension. I expect to wait until 70 to apply for SS. At the end of 2023, I’ll be comparing our baseline income with differing SWR’s as Fritz notes in his comment. We’ll determine how to simplify our actions with advisors having differing points of view. Keep up the good work.

  22. I’ll just say that I find Fritz’s Bucket Strategy FAR easier for my pea brain to comprehend than I do Karsten’s philosophy. In fact, if I only had Karsten’s method to use, I’d be paying some financial advisor somewhere to manage our portfolio. Instead, I am able to do it myself and we use the money we save by being DIY, and take a nice vacation every year. We do have a fee only planner, but we pay her by the project and 5 years into retirement, those projects occur less often as we seem to have the hang of it.

    So thanks Fritz for making it easy for those of us who need a little hand holding, and more importantly for helping fund our annual vacation. 🙂

    1. Not sure if we “watched the same film” here. My SAA approach is far easier than the convoluted bucket strategy.
      Don’t confuse comparing the two (which will take some scientific data analysis) with implementing the different approaches. As a user you need to do the latter only. Let me the workaholic to perform the former.

  23. Dear Fritz and Karsten,
    Having read both of your approaches and having tried a bit of both, I have one thing to say: when you have a couple million in your retirement nest egg, neither approach overall beats the other, i.e. you have enough money to outlast any downturn using either of your strategies given your respective lifestyles.
    If you’re
    1. Female and single/ divorced and still need health insurance either on ACA or open market (pre-medicare)
    2. Have younger children who need some financial help
    3. Have only $500K at retirement, which you DO have to live on along with hopefully delayed Soc Sec.
    i.e. some factors for such lower accumulation among women are childcare at home during marriage, then divorce, pay inequity during your lifetime, caring for sick parents at the cost of job growth
    (note the % of men caring for parents at the cost of their own future earnings is far less than women)
    THEN, what approach you use matters a GREAT deal.
    I tried the Bucket approach, was good for 2019-2021, even weathered the 2020 fall without panicking, due to bucket #1.
    However, 2021 was another matter. Watching that size of portfolio drop 15-30% clearly said to me that another strategy had to be employed, and that was contractual guarantees via a SPIA (Single Premium Immediate Annuity), to cover the gap to taking delayed Soc Sec. and NOT depend on Bucket #1 OR markets to provide an income floor.
    The annuity I went with offers a 20 yr guaranteed monthly income with an IRR of 6.59%. By the time 20 yrs is up, my remaining small IRA and ROTH will hopefully have recovered and I can draw on those in addition to Soc Sec.

    To reiterate: your total retirement savings MATTERS and if you have a lot, either Fritz’s or Karsten’s approach will work, even with a more comfortable lifesyle. If you have much less in retirement savings than they do and you’re no longer able to do the job you had and aren’t eligible for Medicaid, consider taking a portion of your assets and doing a SPIA (single premium immediate annuity) with origination fee being paid by the annuity company, and NO ongoing fees passed on to you.
    Then, use your house equity (I purposely paid off mortage before retirement, that’s where some of the savings from work went) and if you’re staying in place for 15 yrs, do a Reverse Mortgage, establishing a Line of Credit that grows each year, to cover any unexpected large expenses or healthcare needs, that you currently don’t have covered (many people in my income bracket of 12% can’t afford paying LTC premiums)

    Thanks to both of you for illustrating various ways to thrive in retirement. I will put in a plug for strategies that START with a much lower retirement balance, that is realistic to us 12% tax bracket single women or couples.
    We cannot afford to lose 15-30% in a long bull market, and still have assets left for 30 yrs.
    Guaranteed income via no/low cost annuities plays a part in securing a retirement, along with the use of home equity in the form of a Reverse Mortgage.

    1. JThompson…..good point on the power of guaranteed, secure income and how that can bring stability to a person’s financial situation. Addl kudos on selecting a SPIA which is the simplest annuity available. The other annuity options bring along more complexity (and costs) that may not be right for an individual.

    2. Valid point, JT. No doubt, SPIA’s make sense for someone struggling to ensure they’ve got a “floor” to cover their basic needs. I haven’t looked, but I suspect the interest rate increase is also making them more attractive (tho with the inverted yield curve, perhaps they haven’t moved as much given their longer-term nature). Regardless, adding SPIA’s into the discussion is a worthy point, and an illustration of how much an individual’s situation dictates the appropriate strategy.

    3. SPIA might start making more sense now with higher interest rates. But everyone who bought those before the 2022 inflation shock certainly regrets it now.

      A reverse mortgage is an option for older retirees as a last-resort cash reserve. But I’m not too fond of the high interest rates and fees.

      You also make a valid point: Fritz and I retired with a large nest egg and a lot of wiggle room. Not everyone can afford that. Setting up a solid withdrawal strategy is much more important for retirees with less or no wiggle room.

  24. This is very interesting. I’ll admit my knowledge of asset allocation is somewhere in between you two but the transition from 100% equities is readily on my mind as we approach FIRE and I have been reading both your blogs trying to determine what’s going to work for us. I understand where you both are coming from.

    The only thing in this piece I didn’t agree with is this statement “First, folks in the FIRE community are sophisticated investors.” This may be a bit of confirmation bias bases on your readership Karsten but the fact you two are even having this friendly debate tells me not everyone is sophisticated enough to find a definitive answer on FIRE asset allocation and drawdowns. (And not all of us are going to put in the effort to sell covered calls to generate income.)

    I hope you continue to work together on discussions (or debates) in the future. There’s a nice balance of professional knowledge and average joe/jane understanding going on here that is very helpful to us slightly less sophisticated readers here. You two could both benefit from each other if you could find common ground since Fritz’s writing style makes Karsten’s knowledge more digestible.

    1. Thanks for your kind words.
      I found that folks in the FIRE community are more interested in the details. They may not be able to replicate everything I do, but often it’s enough to get a rough idea and still benefit from my research.

      And challenge accepted. I think Fritz and I can certainly think about more areas of cooperation and discussion! 🙂

  25. Great debate from 2 very well-respected contributors in the retirement income field!

    Some of the previous comments capture my sentiment as well in terms of execution. The main factor is the level of involvement that a retiree wants to take in managing their portfolio and income stream. For retirees who prefer a simpler approach, then the Bucket Strategy may work. For retirees who have passion for the details, then SAA/Glidepath/TAA are viable strategies.

    At the end of the day, both Karsten’s and Fritz’s methods should work…..the difference is marginal as long as the retiree is disciplined in following their chosen method.

    I will add that it seems Fritz may essentially be endorsing/using a SAA strategy with his reply to Melissa L earlier in this comment section. Fritz replied….”The balancing between Buckets 2 and 3 is driven primarily by rebalancing Asset Allocation to target %’s”. The only question comes down to the frequency of when to refill Bucket 1 which both Fritz and Karsten have shared their opinions.

    As for going forward, I would suggest that Fritz and Karsten do a case study and apply their methods to an agreed upon make-believe individual…and then see how it looks in the future. For me, I find examples with real numbers/dollars are very powerful in helping people understand concepts….instead of using just words. Perhaps the case study could start with a new retiree in Jan 2023 and project out the next 20-30 years. Of course, the assumptions on age, spending needs (discretionary and non-discretionary), portfolio size, allocation, asset class returns, inflation, Social Security, extra income, etc. would all be the same for both methods.

    Thanks for sharing your knowledge and contributions.

    1. “I will add that it seems Fritz may essentially be endorsing/using a SAA strategy with his reply to Melissa L earlier in this comment section. Fritz replied….”The balancing between Buckets 2 and 3 is driven primarily by rebalancing Asset Allocation to target %’s”.

      As I’ve stated, there is definitely an element of the SAA strategy that comes into play when deciding on which refill lever to pull, and rebalancing (SAA) is a critical element in any strategy. As we’ve said, Big ERN and I are 95%+ aligned on this stuff, but debating that 5% remainder is fun. Right, Karsten?

  26. Love reading what you two rock stars in the FI community have to say! For me, the question of “simplicity” is a key one, but it is probably a subjective one, too. What seems simpler to one may seem more complex to another.

    My gut tells me that Big ERN is correct in terms of which method is mathematically superior. Likewise, my gut tells me that most retirees will find comfort in the bucket strategy as it feels “safer.”

    Which one is more simple IMO? I think Big ERN’s approach. Lots of moving parts to the TBS including decisions about market timing/direction. And Fritz ignored the complexities of having multiple accounts and account types (taxable brokerage, IRA’s, 401k, etc) in addition to having multiple buckets which I think just adds more complexity.

    If I’m understanding Big ERN’s approach correctly, I have one fixed allocation for my entire portfolio, rebalance on a regular basis, and can sell assets as needed to cover my living expenses and maintain the asset allocation. That seems pretty simple to me. Having said that, I’m not yet retired so I’ve not lived through this process and experienced what it’s like to implement.

    Note: I understand some, but not all, of the math that Big ERN does in his analyses and research and am simply trusting that he is correct in his conclusions. Others may feel uncomfortable with that and may, therefore, prefer what seems like a more understandable method (i.e., TBS).

    1. “Note: I understand some, but not all, of the math that Big ERN does in his analyses and research and am simply trusting that he is correct in his conclusions.”

      I’m with you on that, but more importantly…I’m beyond happy to know Karsten and I are both Rock Stars!

  27. Great discussion – Thank you both for bringing up excellent points that we plan to apply going forward.
    My thoughts:
    KISS! We are retired and like a strategy that works for us – not the other way around. Our goal is to live the retirement we want. We worked many long years (including a second job) and saved aggressively to make sure we have enough bandwidth in our portfolio to reach our goals without excessive stress and worry. As a result, achieving alpha is not essential to our success – it’s optional.
    Could we squeeze out more income beyond our buckets? Possibly.
    Is the cost of doing so worth it (cost includes items such as advisor fees and/or additional time and effort to self-manage portfolio)? Not for us.
    We will still go on cruises when we want; if we squeeze a little bit less out of our portfolio than theoretically possible, it just means our kids may take one less cruise after we’re gone.

  28. Great article! Three points/questions for next time perhaps?

    1. If maximizing my portfolio for my heirs/charities is a goal, which method tends to lead to a higher overall portfolio value? I’m assuming Karsten’s, since Fritz’s doesn’t routinely rebalance back into equities when they’ve fallen in the asset allocation.

    2. Which method is typically better from a tax standpoint?

    3. I’m not sure why so many people who’ve posted above perceive Karsten’s method as overly complex. Yes, the options trading and whatnot may be, but that’s not what he’s recommending. If I understand him, you’d have your strategic asset allocation (say, 75/25 stock/bond), then withdraw your SWR amount each year from the portion that’s overweighted (or from both portions, doesn’t really matter), then rebalance at least once annually at whatever interval you use. Seems pretty simple, unless I’m missing something.

    Can’t wait for part 2!

    1. It’s a hit-or-miss. It could go both ways. For example, if you have an extended bull market and you never rebalance to your SAA but simply let the equity gains run (and thus you keep an equity weight > than under the SAA), you accumulate more. But the whole trend-following approach can also eat up your portfolio in choppy markets.
      Again, there’s no strategy that will consistently outperform. It’s all subject to luck.

  29. Gentleman, thank you both for you work on all our behalf.

    In choosing the best answer you have to be a certain of the question. What constitutes success? Simplification or Optimization? As with any continuum, you give up something to get something

    Big picture, this is a tempest in a teapot. I believe that Fritz’s “Strategy” is the same as Kirsten’s “Management,” with simple addition of mental accounting. They are the same thing by different names. The math is the math and the effect is largely the same (and Karsten’s math is impeccable and transparent). The buckets end up being just an asset allocation that you decide to alter based on current conditions. And both are de-risking at the start of retirment <a href=";, which I believe is crucial.

    In retirement, accumulation is simple. Withdrawal/Deaccumulation is highly complex and nuanced.

    Fritz's "strategy" is Kirsten's SAA, Glidepath and TAA with a simplification rule attached. It is decisions wrapped in a self-comforting illusion that you won't need to make those decisions. That is how it is a gimmick.

    The 4% rule is similar. It gives a simplification rule that ultimately leads an astute individual to more complexity (e.g. Retirement window, current age, market valuations and future expectations, supplemental income, etc.etc.etc.) It can't be set and forget — and astute retiree is going mindlessly to withdraw 4% (or 3.x) without adjustment.

    I agree with Eisenhower. "Plans are useless, but planning is indispensable." Embracing the complexity of forced decision making gives clarity and confidence that hoping in the outcome of a rule (especially when you end making those decisions anyway). A gimmick sounds fraudulent. The bucket system is not fraudulent. It is a simplification. You will be better off adopting it than not have an intentional plan, but as mentioned with lightbulb above it may not be as optimal as (SAA, Glidepath, TAA). This means you have a continuum between simplification and optimization. As you move toward simplification you move away from optimization. That means each individual must identify where they fall on that curve (just like the do on the risk curve). And you can color our family Team Karsten.

    Depending on how you define success, there are no losers here.
    Just greater personal comfort.

    1. Yeah, good points. It is a tempest in a teapot because, under realistic assumptions, letting your SAA weights drift by +/-3% and calling that a bucket strategy will make very little difference in the results. But that was my point: don’t expect miraculous results.
      Great Eisenhower quote, by the way. And again, I’m not endorsing “no planning” over the Bucket approach. I’m saying that SAA is adequate planning and the Bucket strategy will not consistently beat the SAA.

  30. You guys are both genius in your own rights, and two of my all time favorite FI writers. I’ve read every post you’ve both written. Interesting point, I have often contemplated this comparison and thought it would be an interesting discussion between the two of you. My own personalized financial spreadsheet that is actually modeled after both of you! It calculates percentages and buckets alike, so I can evaluate and make decisions. I admit that I always liked the simplicity of visualizing buckets, but SAA and basic percentages were just as simple to implement. I tend to lean toward Karsten’s methodology, but I admit seeing the buckets filled gives me a warm and fuzzy too!

    Just call it a draw. I’d happily buy you both a beer (or two!), if the chance ever arises. Note: I spent an hour yesterday trying to talk my wife into a trip to Ecuador after I saw the speaker list.

    Both please keep up the great work!

    1. Wow, I am blown away that you’ve read every one of both of our posts. Truly amazing. Get your wife on board – Karsten and I will both be buying YOU the beers in Ecuador. You’ve earned that payback. And, calling it a draw is the perfect conclusion from an incredibly loyal reader of both of our blogs. Thank you!

  31. Moderator: My reply just sent seems to have lost formatting. It would be my pleasure to re-submit for better legibility if you choose to reject it. Thanks.

    1. It looks fine, Bruce. The hyperlink came through, just not linked to the text. I’m fine leaving it as is. Thanks for the great comment, one of my favorite thus far. I love the conclusion that The Bucket Strategy isn’t a gimmick as much as it is a simplification (of thought, perhaps, as much as anything).

  32. Karsten & Fritz, may God bless you both for this insightful and hardly talked about topic. You are not only helping those who are retired but those who are behind you, unprepared for what awaits, when their time comes. Thank you for being leaders.

  33. 10 cent summary: that actually read more like a higher risk investor vs a more risk averse investor debate.

    Whether or not you label it “bucket strategy” seems silly.

    Asset allocation, implemented in concert with your risk tolerance and on a timeline is a “bucket strategy” minus the catchy phrase.

    Perhaps “bucket strategy” makes it simpler and more mechanical to digest for investors who do not spend their day investing.

  34. Having a little levity with this great debate/discussion…..and so much talk of buckets and beer makes me thirsty

  35. I have read several of the ERN articles and they are very useful.

    A lot of people here are commenting that it seems difficult/ complicated.

    In my opinion the implementation is not complicated and could be easier to manage than the bucket strategy.

    – ERN explanation of how he calculates or arrives at a conclusion such as a precise safe withdrawal rate are complicated and involve a lot of high level math. Conclusion itself is not that complicated.
    – The implementation could be extremely basic, and simpler than bucket strategy. For example – 70/30 portfolio and withdraw 3% per year.
    – He introduces a lot of variables like should you be 80/20 vs 60/40, reverse glide or not, etc. And the safe withdraw rate of each. But the safe withdrawal rates of these options are not typically very far apart and those that don’t want complexity could find a very simple option from his framework

    1. That’s a good summary of my approach. Simplicity. And there is some robustness of the results over a pretty wide range of SAAs, so letting your Bucket weights vary in that range will give you similar results again. Not superior, not inferior. Just hit-or-miss.

  36. This entire discussion is incredibly insightful with each strategy having merits. What tends to be overlooked are the individual factors such as risk tolerance, investment knowledge / willingness to learn, tax implications, healthcare costs and so on.
    It might be of value to offer some real world examples of how these strategies compare. Especially when some of these factors are included in the mix.

  37. My take: Karsten exaggerated with the “cheap gimmick” moniker, perhaps because he was mildly offended someone could simplify his rather sophisticated technical approach, but I just retired after a 40-year actuarial career and I see Fritz’ approach as a useful simplification that will work, and Karsten’s as a more refined approach for those with technical expertise and a high tolerance for risk.

    1. To be honest, it was the “Cheap Gimmick” in the title that made me click on the article. I’m a huge Fritz fan just don’t find much value in “debates” on investing strategy.

      Kinda reminds me of the DFA “evidence-based investing” moniker. All speculation. Nothing wrong with that but nothing science about this stuff.

      1. I’m just glad we found a way to make you click on the post, Josh. Wink. Hope all is well, we need to catch up again soon…

        1. Oh don’t get me wrong, not at all bothered by the click bait title. Like you said, that’s how traffic is driven. That’s why I clicked on the title to begin with! And if it gets people to actually READ THE DAMN ARTICLE instead of just the headline, that’s even better.

        2. Well, Fritz. As I write this I have a 70 pound dog of nuttin but muscle trying to sit on my lap. So I just worry the next time I come up to see you and your better half I’ll be leaving with another one! 🙂

          We’ll definitely make it happen. I’ll contact you.

          1. Every dog needs a friend, Josh. I know just where you can find one…hope to see you soon.

      2. Yep, totally click-bait. Blogging 101: 80% of your traffic comes from the title.
        I also came up with other titles like “How to Lie with Personal Finance” or “Ten things the “Makers” of the FIRE movement don’t want you to know”

        1. Oh don’t get me wrong, not at all bothered by the click bait title. Like you said, that’s how traffic is driven. That’s why I clicked on the title to begin with! And if it gets people to actually READ THE DAMN ARTICLE instead of just the headline, that’s even better.

  38. Appreciate the back and forth between you two guys, but I think there’s a lot of potato/potatoe here and some talking past each other, but a lot of commonality in terms of achieving the ultimate goal of successfully funding one’s retirement.

  39. As far as replenishing Bucket #1, how do you determine if the market was up enough to replenish. If equities are down 30% one year but up 10% the next, do you fill bucket 1 with the 10% that it went up in year two or keep taking from bucket 1 until equities have made up the loss from the prior year?

    1. You’ll have to read Post #2…Karsten and I are working on that now, and I get into more specifics on the management of the refilling process (we intentionally kept some detail out of Post #1 since it was already WAAAAY too long).

  40. Gentlemen, you are both incredible and my two favorite FI bloggers. As a longtime reader (and commenter), I was happy to see this post and look forward to the future discussions. The winner(s) here are all of your readers. Taking on the topic of managing and balancing a portfolio and retirement withdrawals is no easy feat:
    1. complex – the math can be overwhelming
    2. dynamic – changing over time
    3. individualized – different starting points, risk tolerance and time frames.

    Strategic Asset Allocation (SAA) is the foundation of all credible approaches to manage both accumulation and retirement phases. The selection (choice) of an allocation is very important (and well studied). But that allocation is / should not be static as circumstances change. The next level is timing of and approaches to allocation changes – accumulation, SORR, during retirement.

    Fritz’s Bucket Strategy (BS)(not a good acronym) starts with SAA. It then goes further and specifies an approach to allocation adjustments, but only during retirement. BS specifies a set of rules (based on on the calendar) for timing (quarterly), frequency (4X per year), and rebalancing rules (movement of assets). BS also has elements of a Glidepath and Tactical Asset Allocation since it allows the allocation to float over a range, with a simply set of rules for implementation. Easy to understand, easy to implement.

    If one starts with a $1M portfolio and $40K expenses, then the Bucket Strategy starts as 12% cash / 24% bond / 64% equity portfolio (3/6/16 years of expenses). This is very conservative starting point for someone who has FIRE’d presumably to protect against SORR. But how much ending portfolio value are you giving up?

    Other interesting questions (future posts or debates?) center around how and when to adjust portfolio allocations over time (tied person or couple’s age or a specific event)
    1. accumulation phase (100% equities at 20 yrs to xx% at retirement)
    2. around retirement time (one risk is SORR)
    3. deep into retirement (e.g. mid 80’s)
    4. receiving a financial windfall (inheritance, spouse’s life insurance)

    You both get my vote for the open and educational debate. Keep it going.

    1. Great comment, pc. You’re clearly a thinker, though I’d prefer you not associate the “BS” moniker with The Bucket Strategy. Wink.

  41. Great debate!

    Karsten’s approach is actually simpler to execute – just maintain the desired asset allocation – but it is harder to understand thoroughly why it works and have full confidence in it. Karsen states “You also fly on airplanes without knowing all the details of airplane design. It’s enough to know that I did it and then just run your retirement portfolio following a simple SAA approach, which is even simpler than the Bucket method.” Yes, you don’t need to know aerodynamics to feel comfortable flying in a plane. You can simply see that thousands of flights happen daily with virtually no incidents. The statistics show clearly that flying is safe. In contrast, it’s not that easy to feel comfortable following a simple SAA approach if you don’t understand why it works. Karsten explains it well but it’s not trivial to understand, especially if math is not your strong point. If you understand it well enough to stick with it in good times and bad, it’s a great strategy. If you lose confidence in the bad times because you never really understood the strategy deeply enough, you could abandon it at the wrong time.

    Fritz’s bucket strategy, while also reasonably simple to execute, actually has a few more moving parts (the buckets). Its advantage is that it is easier for people to have a rough conceptual understanding of why it works and thus have confidence in the approach. The bucket approach makes sense intuitively and even though it doesn’t eliminate the SORR risks, it does reduce them, and is a sound strategy.

  42. For me, I have decided that the bucket strategy is and will be my asset allocation. I have chosen 3-4 years of cash, 8 years of bonds/income/reits and the remaining balance in stock split equally between growth/aggressive growth/international index etfs/funds. I think a traditional asset allocation/glide path may be too conservative. I will never be underweight in market and should be able to weather any storm.

  43. Great thread guys – really enjoyed reading the comments as well so thought I’d add my two cents. I read both of your blogs back when I retired 6 years ago. They both were very instrumental in forming my own DIY strategy. I lean towards BigERNs SAA as it is simpler to me to implement but, as someone else pointed out, they really are 2 sides of the same coin.

    One observation that makes the bucket strategy more tedious (to me) – a year ago, Bucket 1 filled with $300k (assuming 3 years spending at $100k per) generated 0$ – today that could generate ~$12k. That represents a not insignificant 12% of yearly spend. How does one account for rate of return variances of various buckets? Is it even worth it? Given 2022, it seems important.

    In contrast, SAA forces me only to consider rate of return expectations across asset classes and settle on a level of exposure that makes me comfortable.

    At any rate, no wrong answer here. Great discussion. Thanks.

    1. Mark, no doubt there is some “opportunity cost” of holding cash, but I’ve always viewed it as an insurance premium to ensure sufficient liquidity in a bear market. I would argue that SAA with a 10% cash allocation would have the same opportunity cost. It’s all a question of how much you value the safety blanket of cash. For 2022, I was happy to have that 3 years of cash in the bank!

  44. Both are disciplined approaches that mitigate risk. It seems to me that the biggest benefit is doing something sensible and the difference between approaches is secondary (especially since the results are situation dependent and not assured).

  45. Interesting point by Karsten that I’ve never considered is that bear markets are much longer than stated when factoring time to return to beginning balance. I totally agree this should actually be the timing parameters, though I doubt it’s anywhere near 20 years. After the 2007-2009 recession, I read markets recovered to the starting point in 2014, which would be 7 years to recover from a 40% drop.

    1. 2007-9 was indeed one of the more benign Bear Markets with a quick recovery. But keep in mind you have to recover inflation and a good chunk of your withdrawals. For example, if you started with $600,000 stocks and $400,000 bonds, then withdraw from bonds for ten years, and you find yourself with only the stock portfolio left, then what? It’s not enough for the $600k in stocks to have recovered. You need to recover back to $600,000 plus CPI inflation. And also at least partially recover some of the $400k that you withdrew. As I show in my blog post (, that can take decades.

  46. Great discussion, thank you both. I retired in 2022 at 68. I am a Boglehead with a 60 equity 40 fixed allocation divided among the US and international total stock and bond market index ETFs, with a lot of cash part of which defers Social Security to 70. We will both live quite well from defined benefit income. RMDs will be nice additions when they begin at 73 and plan to make QCDs after age 70. I regard retirement to include long term care and we do not have long term care insurance. It appears larger LTC related withdrawals should be tax deductible as they come out, which has given me pause as to Roth conversions. Have either of you considered this case? Thanks, Steve

    1. “It appears larger LTC related withdrawals should be tax deductible as they come out…”

      I might have missed something, did the new tax law make a change on LTC being tax deductible?

  47. Important and fun discourse but seems can be summed up as largely two sides of the same coin. If you are considering and using these concepts, either way heads or tails you win.

  48. Hard to tell who won this round. Very hard to understand the points for the average reader like myself. Way toooooo wordy!!!! The point I got out it was to have cash to live on so you do not have to sell your long tern stocks. We never know what the market will do in the short term.

    My suggestion would to have a live debate with questions from readers or a live audience. I guarantee your answers and words will be shorter more clear to the average person. That’s what you want correct? To break it down to regular investor, that had never studied this before and needs help to have a safe retirement.

    Thank you!!!


  49. It would be useful to read how to allocate private real estate equity interests. Big ERN states in passing that he treats his as somewhat like public equity, which makes sense because of the risk / return profile. But “how much” like public equity is appropriate? Perhaps half like public equity, half like bonds? Even “income funds,” not only “development funds,” entail some equity risk. This is a significant issue for those whose portfolios include significant amounts of private real estate. Perhaps another column for Big ERN in his thoughtful SWR series, which I follow carefully.

  50. Okay, I think I have figured out why I am struggling so much with Karsten’s SAA concept – which I think is basically, “determine your asset allocation (which can change over time and as circumstances change) and then rebalance as necessary to maintain your asset allocation”. (Karsten correct me if I am wrong).
    HOWEVER – I have never been able to figure out what my asset allocation should be! My NW growth from $64K to over $1M mainly in 403B stocks with about $150K in cash accounts (so that I don’t have to touch my investments during a downturn). While investing during employment, I avoided bonds as I was looking for growth and felt that I could take much higher risks due to 3 sources of retirment income for life. But – now I am in retirement and no idea of how to determine my asset allocation since my 2 pensions+SS cover my living expenses for the next 4-5 years before I will need to start withdrawing any investment funds. Therefore, conceptually, I understand the buckets as in “I need ready funds for several years, then monies for 5-10 years and then monies for growth”. My brain gets that concept. At the same time, I could easily switch to the SAA (if I understand it correctly) – IF I could ever figure out what my asset allocation should be given possibly another 30 years to live in retirement but with guaranteed income for life. My biggest concern is going to be taxes as I have no deductions (except for a small mortgage and charity) which puts me into a 24% tax bracket no matter what. Because of that, I am in process of converting as much of my 403Bs to ROTH IRAs before I have to start taking RMDs or Congress stops the Roth Conversions.

    Having said all of that, I do want to express my unending graditude and appreciation for the FIRE community who has educated me, encouraged me along the way, and taught me how to change my handling of money. While I am actually a retired FI vs a FIRE, if not for this FIRE community, I would never have grown my NW from $64K in 2004 to $1M at retirement. My only remaining debt is a very low interest rate mortgage which is not worth paying off.

    1. I like your summary of Karsten’s SAA approach, V. One thought – you can use the “Bucket Strategy” thinking as a way to determine an initial Asset Allocation, then use SAA to manage it rather than focusing on maintaining Bucket 1. You’re in an enviable position of having 2 pensions + SS covering your living expenses, I suspect you’ll be fine with whatever allocation you decide on.

  51. You have to measure the utility of the strategies against what many people do – which is stumble along without any plan at all. Most people could easily implement a version of the bucket strategy and be much better off for it. ERN’s strategies might be mathematically superior but very few people have the skills or interest to follow them. So you are preaching to different audiences.

  52. I’m a follower, but not of the bucket strat. I’m 55 this year; 100% equities.. any cash held for more than 1-5 years lost money.. depending on how you slice it. investing is long term, and long term – equities beat it. I have maybe 30k cash only to protect against layoff, but not to protect my investments. I follow you, love you, I’m an Big Ern supporter on this one. actually … supporter of myself… Big Ern was merely an input to my work.

    Steve (NWOutlier)

  53. I started setting up a bucket system much like Fritz’s. I didn’t plan to retire and still don’t. But I’m unexpectedly on disability now and using the system. It is easy and works well.
    I don’t think Karsten’s comment that “ “buying the dip” or “SoRR insurance,” could be misunderstood as the Bucket Strategy miraculously allowing you to time the market and beat” is fair or accurate.
    Love this content!

  54. Thank you guys so much for the “duel” and the subsequent comments it has elicited. I have recently retired at 66 since I was ready to leave many of the aspects of a great career behind, but I do miss the cash flow that was there each month. To me, at this point in life, It is hard to categorize what I am doing , whether it is a “bucket ” approach or asset allocation or free-form style . I am drawing a nice SSA check monthly and have a reasonable “cash” income flow from insurance ,CDs and money market funds, short-term bond funds, etc that allows me to not have to withdraw a lot from investment funds. Rebalancing or refilling ,whatever I have to do, it is what it is. I like so much of what each of you brings to the table for discussion. I also am a fan of Rob Berger and his calm and reasoned outlook on the markets. Blessings on you both!

  55. Great discussion in the article and comments.

    Karsten – I am very curious about your aversion to TAA and look forward to your upcoming articles. There are very good and cheap tools out there to enable TAA, and while there is some work up front to understand and make decisions about what algorithms best suite what one is trying to accomplish, the implementation is straightforward. Todd Tressider has been a proponent. I think it comes down to whether you believe inflation has changed the game, and thus believe the tools of the past ten years (index funds, simple stock/bond allocations) no longer apply. Was 2022 a fluke for 60/40 or is there something more going on? Trend following looks to rise the waves, seeking alpha yes but really managing risk by reducing downside and getting while the getting is good. If we return to the days of the Fed put then these strategies are suboptimal, but one can still win. If not, we are left wondering why our portfolios haven’t gone anywhere in 10 years. You have a great background to dissect this, I’m looking forward to reading about it.

  56. While both methods will work for some people some times, I prefer an actuarial method that is done periodically to determine how much I can spend in the next year. It takes all current conditions into account along with what happened this year. A relatively simple, deterministic actuarial model (i.e., it uses deterministic assumptions about the future to determine results) that I use is found at

  57. Having followed both Fritz’s and Karsten’s blogs for a few years now, I too was like Jason (from the second comment), in wondering when the two of you would publish your disagreement on the bucket strategy. I think I am like most DIY retirees, though, who want to keep their investments as simple as possible (KISS). In fact, I use the more simpler two-bucket approach that Harold Evensky (the father of the bucket strategy) proposed—that is, a cash bucket and a holistic all-investments bucket. (Watch the interviews with Evensky via Morningstar ( and Roger Berger ( I agree with Evensky stating it comes down to behavioral finance/economics, in that most of us probably behave emotionally during bad markets; i.e., we are not rational like an economists. The bear market of 2022 was proof of that for me!

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