The 60/40 Portfolio vs. The Bucket Strategy

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When I retired in 2018, I implemented the Bucket Strategy.  What would have happened if I had used the 60/40 Portfolio instead?

I decided to find out.  

For today’s post, I’ve recreated the past 8 years using both the 60/40 Portfolio and the Bucket Strategy.

For each strategy, I used the same spending assumptions, market returns, and 2018 – 2025 time frame.  The only difference was the rebalancing methodology, which was consistent with the guidelines for each strategy.

Below are the results.

Hint:  The answer may surprise you. 

What would have happened if I'd used the 60/40 Portfolio instead of the Bucket Strategy when I retired in 2018? I ran the numbers, and today I'm sharing the surprising results. Share on X

The 60/40 Portfolio vs. Bucket Strategy

As the sixth article in The Bucket Strategy Series, today’s article will be a direct comparison between the two approaches. For background on the basics, I encourage you to review the earlier articles in the series, shown below (in particular, How To Refill The Buckets explains the methodology used for this comparison):

The Bucket Strategy Series:

The Rules For The Battle

The assumptions for both scenarios will be the same:

  • Portfolio at Retirement:  $1.5 M
  • Safe Withdrawal Rate:  3.3% ($50k/yr withdrawn from portfolio in Year 1)
  • Spending increases each year in line with CPI (from $50k in 2018 to $64k in 2025)*
  • Annual rebalancing per each strategy’s methodology
  • Each year is modeled in detail (See “Appendix” at the bottom for all the numbers)
  • Tax implications are not factored into the results for simplicity.

* Note:  “Spending” in this context refers to withdrawals from the portfolio and excludes other income.  For example, if you spend $90k and have $40k of Social Security, you would plan to cover $50k of your total spending via investment withdrawals under both strategies. 

Starting allocations are similar for both portfolios, though arrived at via different means.  For the Bucket Strategy, Bucket 1 is 3 years @ $50k spending ($150k) and Bucket 2 is 8 years @ $50k spending ($400k). The 60/40 is a straight percentage calculation.  Starting positions are shown below:

We’ll be using actual market returns for 2018 – 2025, summarized below:  (data source here),

The CPI data for spending adjustment is shown below (as cited here):

We’ll assume the following rebalancing methodology:

  • The 40% portion of the 60/40 Portfolio is consistently rebalanced to 10% cash and 30% bonds.
  • For rebalancing the buckets, we’ll aim to achieve 3 years of Cash and 8 Years of Bonds, as outlined in How To Refill Your Buckets in Retirement.   Buckets 1 & 2 can be drawn down if markets underperform.

Each year has been modeled in detail and is available at the bottom of today’s post.  Below is 2020 for both the Bucket Strategy and the 60/40 portfolio as an example of the methodology:

Bucket Strategy – 2020 Rebalance

60/40 Portfolio – 2020 Rebalance

And The Winner Is….

The Bucket Strategy outperformed the 60/40 Portfolio by $241k in this head-to-head comparison. Share on X

Why hold you in suspense?

The Bucket Strategy outperformed the 60/40 Portfolio by a surprising $241,098!  Here are the results:

The Bucket Strategy ended at $2,629,121, which is $241k higher than the 60/40 Portfolio’s $2,388,023. I’ll discuss my thoughts on the 10% better results later in the article.

Prefer graphs?  

The Bucket Strategy was the clear winner over the time frame in question, and in hindsight, I’m pleased I went with this strategy.  Before we celebrate prematurely, let’s look at some additional comparisons.

But Wait…There’s More

While the Bucket Strategy did a decent job of “protecting” 11 years of spending (its primary objective, with 3 years of cash in Bucket 1 and 8 years of Bonds in Bucket 2), the 60/40 Portfolio took a more conservative path, increasing the initial 11 years of protection to 15 years of protection by the end of 2025:

For you graph lovers…

* Year-ending values represented in the chart above.

The 60/40 automatically rebalances to 40% in cash/bonds, regardless of how many “years of spending” are already covered. This results in an increase in the years covered by the cash/bond allocation in the 60/40 (in a rising market), whereas the Bucket Strategy intentionally limits cash/bond allocation to a maximum of 11 years of coverage, allowing the growth to occur in the equity portion of the portfolio.

The Rising Glide Path

As discussed in my last article, the Bucket Strategy results in a rising glide path whenever the market returns exceed the Safe Withdrawal Rate.  This is driven by the fact that, with the Bucket Strategy, Asset Allocation is a result of, rather than a driver for, the annual rebalancing process. 

In effect, by keeping the focus on maintaining Bucket 1 (Cash) and 2 (Bonds) at a combined 11 years of spending, the strategy lets the balance flow into Bucket 3 (stocks).  As the portfolio grows faster than consumption, the asset allocation to stocks naturally rises, resulting in what Michael Kitces calls A Rising Glide Path.

This is confirmed by the Asset Allocation comparison shown below:

(Note:  I was pleased to see that my modeling resulted in a stock allocation of 73%, very close to my actual stock allocation of 72% on 12/31/25.  A nice “validity” test for the model).

The Primary Reason For The Bucket Strategy’s Outperformance

Essentially, the Bucket Strategy maintains the “short-term” protection in cash/bonds at 11 years and allows the portfolio growth to flow into equities, whereas the 60/40 spreads the portfolio’s increase across all asset classes, resulting in more “short-term” protection as the portfolio grows (from 11 years to 15 years in this example).  The larger equity exposure in the Bucket Strategy allows for greater growth in a rising market, while still providing the same 11 years of short-term protection offered at the start.

In short, the 60/40 Portfolio is a more conservative approach.

If someone is comfortable with 11 years of protection early in retirement (when the Sequence of Risk is at its highest), it seems overly conservative to continue increasing the years of spending “protection,” which is what happens with the 60/40 portfolio whenever market growth exceeds the safe withdrawal rate. 

This “protection” comes at an opportunity cost, as demonstrated by the chart below.  By increasing the $ amount in cash and bonds, the 60/40 sacrifices the growth opportunity experienced by the higher allocation to stocks in the Bucket Strategy. 

The result is a lower overall growth rate of the portfolio in a rising market, which led to the $241k outpeformance, and an additional 4 years of spending covered by the Bucket Strategy at the end of 2025:

Avoiding Selling Stocks After A Downturn

One of the goals in retirement is to avoid selling stocks after a downturn to the extent possible.  Selling after a downturn turns a “paper” loss into a “real” one.  So, how did our two methodologies perform?

In the 60/40, the rebalancing rules required the sale of stocks after the downturns in both 2018 and 2022.  Even worse, the 60/40 also sold bonds after their downturn in 2022.  In both cases, the sales were used to rebuild cash to the 10% target, as shown below (highlighted in yellow):

Contrast this to the Bucket Strategy, where no rebalancing was conducted in either of those years (the decision was made to intentionally draw down Buckets 1 and 2 to allow time for the market to recover, as allowed in the methodology).  The  Bucket Strategy is shown below:

A common argument is that the 60/40 forces you to “Buy The Dip,” but that never happened in the years covered by this analysis.  Since cash is drawn down every year by retirement spending, there was always the requirement to move money from bonds and/or stocks into cash, even in the years with downturns, as shown above.

In theory, a large enough drawdown in stocks WOULD force you to buy the dip, but I would be nervous about reducing the cash buffer you’re using for retirement spending after a major bear market.  Further, I would argue that the benefits of keeping cash/bonds at 11 years of spending and letting Bucket 3 grow are a material advantage of the Bucket Strategy that is often disregarded when making the “Buy The Dip” argument. In fact, this advantage of the strategy is rarely cited by critics.  Perhaps we’re sharing new insights today, and it bears repeating:

The Rising Glide Path of the Bucket Strategy is an offset to the risk of losing a Buy The Dip opportunity.

Not So Fast….

I can read your thoughts.

Yeah, but….(enter your list of excuses here, I’m sure you’ll list them all in the comments).

I’ll concede that 2018 – 2025 was an exceptional time in the markets, with 6 of the 8 years experiencing stock growth in excess of 17%.  Clearly, all this analysis does is prove that the Bucket Strategy outperforms the 60/40 portfolio in a rising market.  As I said, I’m glad I’ve been using it since 2018.

But what does the future hold?

Unfortunately, none of us knows the answer to that, but we still have to decide which methodology to use to create our retirement paycheck.  Personally, I would never advise against using the 60/40 approach if someone prefers that route.  It has a lot of merit, and it’s far better than not having a formal methodology.  Rob Berger makes some great points in this YouTube Video, and I’ll be the first to admit his arguments are solid.

Some other factors to consider:

Ease of Use

The 60/40 IS easier to manage, though I would argue it’s not as wide a difference as many claim. The 60/40 is straight math.  Simply multiply your year-ending balance by 60% and 40% and rebalance accordingly.  It doesn’t get any easier than that.  I’ll admit, I’ve considered implementing it as I get older to minimize the risk of cognitive decline (though in fairness, I’d probably use 65/35 to minimize the “years of spending” growth in cash/bonds).

Peace of Mind

That said, others favor the psychological assurance of knowing you have 11 years of liquid cash and bonds to help you buffer a market downturn, which the Bucket Strategy provides.  The following comment from “Big Fish” on my last post is indicative of this mindset:

“When worry wants to creep in in the middle of the night, telling my reptile brain I have a 60/40 portfolio means nothing. But telling it that I have five, or 10 years of cash or equivalent, sitting there, switches off the reptile brain and sends me back to my dreams.” – 

The biggest concern folks have with the Bucket Strategy is the lack of solid rules around when to hold off on refilling the buckets and when to start refilling them again. Thus far, it’s been pretty clear for me what to do each year, and it takes me less than an hour each year-end to manage the process.  You can see the refilling approach by year in the “Appendix” at the bottom of the article.

I’ll concede the “ease of use” argument,  but I have 241,098 dollars reasons for why it’s worth a small bit of ambiguity to consider using the Bucket Strategy as a viable alternative.  One thing to consider: you can backtest it or implement it for a year or two, and revert to the 60/40 if you struggle with the rebalancing process. 

The biggest problem I have with the 60/40 is its disregard for annual spending levels (aside from calculating your Safe Withdrawal Rate at the start of retirement).  In a growing market, it continues to increase your years of “protection,” a conservative approach that comes with opportunity cost. Also, it doesn’t allow you to hold off selling stocks after a downturn to replenish the 40%, as demonstrated above.  

In contrast, the Bucket Strategy results in a valuable Rising Equity Glide Path, as long as you have your 11-year “safety buffer” in place and returns exceed your Safe Withdrawal Rate.

The Lost Decade?

As a comparison to the “above-average” returns of 2018 – 2025, I’d like to run the same experiment for “The Lost Decade” of 2000 – 2010, when stocks delivered a net annualized return of 0.9%.   I suspect the 60/40 would be more likely to outperform in that timeframe, given the higher volatility of both stocks and bonds and the inability of the Bucket Strategy to develop the Rising Equity Glide Path, given that the SWR of 3.3% exceeded market growth of only 0.9%.

As I’ve done today, I’ll be 100% transparent with the calculations and the results.  I’m curious, and I think it would be helpful to the discussion.  Perhaps that will be my next post, but don’t consider that a promise (it took some serious time to put together today’s post).  I welcome your thoughts in the comments – worth doing?  I don’t want to beat this topic to death, but I’m willing to run the side-by-side comparison through the Lost Decade if there’s enough interest.  The ball’s in your court, let me know…

Conclusion

I trust this analysis has been helpful as you decide which strategy you’ll use to create your retirement paycheck.  Both methodologies have merit, and I wouldn’t criticize anyone for choosing either one.

I’m pleased I chose the Bucket Strategy for the time frame in question, and my portfolio has benefited from an additional 6-figures of growth as a result.

That said, none of us know what the future holds, nor do we know which methodology will outperform in the years ahead.

Ultimately, that’s not the point.

The important thing is to implement a process that works for you and avoids making emotional decisions when the markets get volatile.  I believe either of the methodologies will serve you well, as long as you’re diligent in doing whatever annual rebalancing your approach requires. 

Regardless of which strategy you choose, there are some specific steps you should consider to increase your odds of having your money last longer than you do:

  • Focus on using a Safe Withdrawal Rate that allows you to live your life. 
  • Build some discretionary spending into your budget to allow you to reduce spending if necessary. 
  • Check your SWR against your year-ending net worth as you finalize your annual paycheck amount. 
  • Rebalance annually, using whatever method you prefer.

Building in some spending flexibility, combined with a sound methodology for annual rebalancing, is the key to winning the game.

Then, get on with enjoying your life.

Isn’t that really what retirement is all about?

Your Turn:  Were you surprised by the results?  What methodology do you use to create your retirement paycheck, and has this analysis caused you to consider making any changes?  Finally, do you want me to run the same comparison through the Lost Decade? Let’s chat in the comments…

APPENDIX – Annual Data:

The Bucket Strategy

The 60/40 Portfolio:

93 comments

    1. This is fantastic! I was wondering a couple of things that you mentioned or you’re going to address. First, what if you simply began your allocation at 63/37 and followed the 60/40 rebalancing rules. Second, what would happen in a 2000-2010 market? I suspect the 60/40 will have done better for the reasons it lagged in the current example. All very compelling.

      1. Hold that thought. I’m going to do the 2000 – 2010 Lost Decade analysis next, will do 60/40 and 65/35 to get a sense of the impact. Stay tuned…

        1. Yes. Please, … please. I have a paper loss of about 1.5M during that accumulation period, would very much interested to see what would have happened if I was to retire back then. Big thanks for your great workup. I for one is very thankful for you and your work. Please keep it up.

  2. I am wondering what an unbalanced 60/40 result would have been since your bucket ended up with over 72% in equites. So increasing the portfolio equity percentage led to higher returns. I’m not sure that is a surprise to many. I would agree that if bucketing would allow a person to hold more of the portfolio in equities and not panic sell, it would have been advantageous in the last 6 years.

    1. Dan, by “unbalanced,” I assume you meant what would have happened with 0 rebalancing? Interesting question, I suspect given the strong equity markets it would have outperformed both the bucket and the 60/40 and resulted in a higher allocation to stocks. Wish I had the time to run all of the various scenarios that will come up in today’s comments…

  3. An interesting analysis and the strategy is definitely worth considering. I would be very interested in seeing the “lost decade” results but in conjunction with a 65/35 portfolio which I feel is a more appropriate split. As you I say, I suspect that the outcome will not be as wide in a 65/35 scenario. Overall a very useful and thought provoking analysis. Thank you!

    1. Great job on the comparison. I would love to see you do the lost decade as well. Comparing the 60/40, 65/35 and bucket strategy.

      1. Ok, so add more years (decade vs. 8 years) AND a third scenario? Geesh….wink.

        Actually, I do think it would be worth running both the 60/40 and the 65/35 for the lost decade. Even though it adds to the work, it’d be really interesting to see what a 5% tilt in allocation does.

  4. Great post Fritz. You read my mind, yes do the same analysis for the lost decade. I’m dying to see which method works better

  5. When I retired in December 2013 (resource action early retirement), I really had no plan and worked with a financial advisor in set up and annual reviews. Somehow I was able to fund $475K of fees and lifestyle and end up with 130K more than where I started. I am now 71, and have aligned my accounts to be able to implement a bucket strategy to facilitate our purpose and lifestyle. The financial advisor only wants “Dividend income” portfolios for buckets 2 & 3. What are your thoughts on that? And how different should buckets 2&3 be in “makeup?”

    1. Steve, I think most folks that retired over the past decade have been pleasantly surprised to see their portfolios grow in spite of spending withdrawals. The markets have clearly been a favorable tailwind.

      As for Buckets 2 & 3, I encourage you to read through the first article in this series. I share what I consider the appropriate assets for each bucket. And yes, Bucket 2 if fundamentally different than Bucket 3.

      Finally, I’m a huge fan of being widely diversified, and would get nervous with anyone suggested “only” for any sizeable portion of your portfolio. Yes, I hold some dividend stuff (bonds, higher dividend stocks, REIT’s, etc), but I also own growth assets (tech stocks) since my goal is total Portfolio growth, which comes from both dividends and underlying growth in asset value.

  6. Thank you for your always detailed analysis, and the significant time spent putting this together. As I was reading, my mind was already going to the ‘what if the market is flat’ question before I got to that section in your article. I would appreciate an article from that perspective.

    1. Thanks for recognizing the time investment. It was a fun article to write, but definitely took more time than my typical article. Looks like I’ll be doing it again given the unanimous request to run the Lost Decade. Interested to see the results.

  7. Great work Fritz! Very interesting analysis. I would be curious to see a comparison between the 60/40 portfolio and the bucket strategy in a down market.

    1. Until we see the analysis through a full market cycle the comparison is not really helpful.
      During your selected years we had phenomenal returns in equities and the percent equities in buckets strategy was usually higher. This could explain the apparent benefit.

      I suspect a similar strategy during the great financial crisis would yield different results.

      Eliminating tax implications makes this only valuable for tax deferred accounts.

      There is no easy solution.

    2. Mary, it’s unanimous. I think it’s worth the effort to run the Lost Decade as a comparison. Stay tuned…

    1. Your wish (and everyone else, it would seem) is my command! I now know what my next article will be…stay tuned.

  9. Great analysis. Thank you for this article and all of your work helping me secure my financial freedom!

    One minor observation: The article says “ Simply divide your year-ending balance by 60% and 40% and rebalance accordingly.” However, I think that you meant to say “ Simply MULTIPLY your year-ending balance by 60% and 40% and rebalance accordingly.”

    Love your blog and I always look forward to reading it because it teaches me so much!

    Thank you.

    1. Of course you’re correct, Randy. Thanks for pointing that out. Heading up to edit it now…

  10. Yes please repeat for the lost decade. While this post was informative, covering the downturn will be equally important. Allowing us to compare which methodology might yield a higher return and more to the point, a more bountiful retirement!

  11. This was very helpful. It would be a good comparison to the lost decade so the range of possible outcomes is better understood.

  12. What would have the result have been if 1. You started with equal weight of stocks and bonds rather than 63% stocks in bucket portfolio (seems like a finger on the scale?) and 2. If the rebalancing strategy for the 60/40 was not automatic and more opportunistically to minimize selling stocks during downturns vs the bucket strategy which is designed not to sell during downturns?

    1. Rob, regarding #1, it wouldn’t be possible to have “equal weight” of stocks and bonds unless you intentionally wanted to increase the number of years you choose to “protect” with Buckets 1 and 2. The beauty is, you can size the buckets for whatever your risk preference dictates, but afraid it’d be too much work to rerun the analysis for every “what if” suggested in the comments today.

      Regarding #2, adding “subjective” rules to the 60/40 would destroy one of the core tenants of the strategy, which is to have automatic rules that take 100% of the emotion out of the process. If you prefer to not have things automated, it would tend to tilt someone toward the Bucket Strategy in my opinion.

  13. Nice work. Yes would be interesting to compare annual rebalancings and EOY portfolio balances during the lost decade. If feeling ambitious, similar analyses over longer periods (20, 30, 40 years) spanning up and down markets for stocks, bonds and cash.

    1. Al, based on today’s feedback, I’m planning on doing the Lost Decade. Afraid I’m not ambitious enough to do 20, 30, 40 year comparisons, trust you understand. 😉 I suspect we’ll learn a lot doing the Lost Decade, that will have to suffice for now.

  14. Interesting and helpuful, thank you. Why does it seem that you don’t ‘reset’ to the $150k in cash each year on the bucket method? It seems following down years you are comfortable with only 2/3 of your target, am I interpreting this correctly? What if you experienced two or three down years in a row?

    1. You clearly have to read the first post in the series, David. By design, the Bucket Strategy “allows” you to draw down Buckets 1 & 2 following downturns. As for your second question, I suspect you’ll see how I would handle that when I do the Lost Decade analysis for my next article. Hold that thought…

  15. This is a surprising. I would have thought the Bucket approach more conservative than the 60/40. I would be curious to know what the comparison is like with the Bucket approach to a 70/30 portfolio.

    1. For the Lost Decade article, I’m going to include both 60/40 and 65/35. It’s more work, but should yield some answers on the sensitivity analysis of changing the 60/40 baseline. Stay tuned.

  16. Fritz, thank you for taking the time to do this analysis! I’d definitely like to see the down years analysis as well, since that’s the reason for keeping 40% in bonds/fixed income.
    I retired a year after you did and fervently followed your pre-retirement journey, including the online countdown calendar and the refrigerator timeline map, both of which I did as well. 😁 Although I happily find that I don’t need to use my portfolio to live on for now, I’d still hate to see it lose value, so I’ve stayed around a 60/40 allocation to have the bond portion (it’s all IRA) available in case I need it in a down market. (Yes, I’ve done some Roth conversions, but our taxable income negates most of the tax benefit going forward). Love your thoughtful analyses, thanks again!

    1. I love “fervent” followers! 😉 Happy to hear my work has been helpful on your journey.

  17. I’d like to see a similar comparison between a 60/40 portfolio and a 70/30 portfolio. It looks to me like for all the calculations, what I really see here is a higher return during an essentially bull market based on a higher percentage of assets in equities. My husband and I have different allocations based on our different risk tolerances. He takes more risks, and I sleep better at night. That’s the real choice in my mind.

    1. Susanne, clearly, a 70/30 would have outperformed the 60/40 in the ’18 – ’25 timeframe, given the strong equity performance. A bigger question is whether the 30% in the 70/30 would provide enough “protection” in a down market. I’m planning on running both 60/40 and 65/35 in the Lost Decade to get a sense of the impact in a sideways market.

      1. Interesting if you change the allocation on your portfolio analysis to 72/28 with 28% cash you end up with $2,680,000 without worrying about the bonds underperforming. Of course who knows if bonds will have negative years in the future but, there’s piece of mind having cash to use when you need it.

  18. As someone else mentioned, I would like to see the comparison during the 2000-2010 time frame and also the 65/35 split. I’m planning to retire in two years so this is very relevant to me right now!

  19. Great analysis. Would love to see the comparison of the two approaches during the lost decade.

  20. Fritz,
    Great article, as your friend since childhood, it has been great watch your activities pre and post retirement. I too would be interested in the alternative projections (65/35, lost decade). The 65/35 might really make a difference in current projection given how the various sources performed from 2018-2025 and simply the starting point for each “bucket”. The 65/35 would put more funds in buckets that have performed better, at least from high level observation.

    We are starting our 1st calendar year in retirement, and so far so good.

    Thanks for your sharing this journey my friend,

    Brent

    1. Brent, great to hear from an old friend!! Congrats on crossing “The Starting Line,” pleased to see you reading my blog. I’m going to include the 65/35 in my “Lost Decade” analysis for my next articles, will be interested in seeing the impact. Great to hear from you, glad to hear retirement is going well for you.

  21. Thanks. That was interesting and I look forward to your next analysis. I’m just wondering if there’s a way to add something like the 11 year upper limit for more liquid assets when using a (now modified) 60-40 split.

  22. I read everything that you write, Fritz, and am delighted that you are still contributing after your “second retirement.” You are one of those who have given me confidence in my own planning. All the best to you as spring approaches.

    1. SL, you’re in rare air if you’ve read everything I’ve written – I only know of ~10 readers who have done that! Thanks for the encouragement, much appreciated. And yes, spring is here. My wife and I took the dogs on a hike this afternoon – 75 degrees and sunny here in Georgia!

  23. Thanks for this work as usual Fritz. I thought in the 60/40 methodology, most people apply bands of approximately +-5 % points? In the 2018 and 2022 downturn the percentages for stock and bonds would have remained within those bands, therefore, no need to rebalance and no sale while it’s down?

    1. I was also wondering about the 5% rebalance bands strategy for a 60/40 portfolio! That wrinkle might drive Fritz over the edge. 🙂 I think bottom line 60/40 (or 65/35) , bucket strategy, and 60/40 with 5% rebalance bands will all have their days in the sun depending on time periods. Ultimately it comes down to how conservative or aggressive a retiree investor wants to be

    2. Fernando, adding bands is certainly a viable option, but a strict 60/40 removes the human element, so it would be a “modification” on the original strategy. I agree it would have helped in 2018 and 2022.

  24. You can save yourself some of the work required to look at the “lost decade” by scrolling down to the bottom of John Greaney’s periodically-updated reviews of real-life retiree returns. For those unfamiliar, Greaney’s blog on early retirement was almost certainly the very first and he’s sharp as a tack (not to mention delightfully irreverent):

    https://www.retireearlyhomepage.com/reallife25.html

    Both the bucket approach and the modified 60:40 (because you’re using cash, which isn’t part of a classic 60:40) are crude precursors to Cullen Roche’s Defined Duration methodology:

    https://disciplinefunds.com/wp-content/uploads/2023/09/Defined-Duration-Investing-1.pdf

    For those who want to go this route Roche’s granular analysis of how to layer specific assets to address your needs over time is invaluable.

    Bigger picture though the whole idea of “SWR” is fatally flawed. A liability-matching approach to cover essential expenses (using a TIPS ladder, SS and pensions) plus an all-equity risk portfolio has been shown to be far superior – see this paper by Stefan Sharfansky:

    https://www.tandfonline.com/doi/full/10.1080/0015198X.2025.2541567?src=most-read-last-year#d1e115

    For those without the patience to plow through the paper above there’s his very easy to use tool to try out the strategy:

    https://thebestthird.com

    Even if this particular approach doesn’t appeal an amortization-based approach to spending is far superior to crude SWR stuff (and no, guardrails or rising glide paths just don’t help much, as Sharfansky’s paper shows). I use TPAW planner to manage amortization-based withdrawals and recommend it highly. I’ll resist the temptation to post yet another hyperlink but you can Google it or check out the epic-length (and constantly growing) thread on it in the Bogleheads forums.

  25. Fritz,
    Great insight! Would your results be the same if you targeted a 70/30 portfolio versus 60/40?

  26. I am interested in your view of using FIA in the bond bucket with either a 45% par rate in S&P or 9% cap. That index options with 0 floor has enormous advantages to bond portfolio?

  27. Thank you for doing this Fritz! Hopefully with AI and tooling we can all model these scenarios more easily in the near future.

    For my own approach, I’ve moved away from targeting first and foremost a stock vs bond split %.

    Instead, I’ve settled on a two bucket portfolio:

    In Bucket 1 goes 5 years of must-have expenditures. How much do I need to protect 5 years of needed expenditures? No equities. Just cash/MM/Bonds.

    In Bucket 2: Anything left over goes into well diversified equity indexes across US and Intl. After reading through models of gold and managed futures to hedge market downturns and to have some less-correlated assets, I’m also keeping 10% of this Bucket 2 in those asset classes.

    Not sure if this is helpful for anyone else, but I always have to stop myself when I see percentages and ask “when do I need this money?” If it’s in one year, it’s cash, if it’s within five years, it’s money market & bonds, and anything beyond five years, that’s where I think about diversified equities.

    1. It’s an interesting approach. Not sure you’re the person who sent this to Ben Carlson but he commented on this approach and gave it a thumbs up.

      1. I’m someone else but I’m glad there are many OK ways to go about it. Just reading all these comments is enlightening too (a great teacher foments reflection and learning through discussion, not just giving all the answers). Someone mentioned the Defined Duration model (thank you, yay!) – that’s basically what I’m doing at a high level.

  28. Thanks Fritz, as you point out, the advantage is simply due to taking on more risk. We expect better returns when we have more equities. If we compare bonds to cash and keep the risk level consistent the 60/40 will usually win. Bonds offer convexity during severe market corrections.

    Through the financial crisis from 2008 to 2011 the retiree would have a portfolio value that is 21% greater.

    https://testfol.io/?s=2U068NrJCAV

    I found the same benefit through the dot com crash.

    Cash would work better through a high inflationary period such as stagflation. That said, a retiree should have gold and a separate inflation fighting bucket, IMHO. So that becomes a moot point.

    Dale from Retirement Club (in Canada).

    3. One thing I see that is different with Michael Kitches analysis is that he rebalances the bucket strategy to the 60/30/10 “target”, whereas Fritz maintains 11 years of spending. That seems like a significant difference in methodology.

  30. Fritz, great article and very thought provoking. Thanks for taking the time to do this. I thought I was done thinking about this topic and had settled on a 65/35 portfolio for myself (just started retirement this year). I admit I have also thought about including a rising equity glidepath explicitly. I’ve never seen the point of so much cash either way. The only thing that makes sense to me is having enough cash for current expenses, say one year at a time. In most market conditions, cash is a drag so it makes sense to minimize it.

  31. Thanks for using your format and accounting method. I retired and used the G fund in the TSP for my safe bucket. Used that as a spending bucket while waiting to turn on SS. Once SS kicks in along with RMDs our lifestyle will be fully funded and hopefully no worries. As time went along I started “juicing” the TSP return by adding in some C fund. The other money performed very nicely. Better to get lucky then good. IF things had gone the other way we were fine but would not be going and trips as much. Cash bucket makes for sleeping great!! Thanks for all your work!!!!

  32. Fritz, I always enjoy your articles. That said, on this one, it seems to me that the comparison in part rests on your annual spend. If your annual dollar spend is considerably higher, the bucket strategy would require you to hold alot more in cash and bonds, lowering returns.

    My bottom line feeling though is that these two strategies aren’t necessarily in conflict unless you implement and manage them in a very detailed way. My annual spend is higher than what you modeled, my portfolio is more like 58/42, and when I analyze my investments by bucket, they roughly approximate the years spending targets by bucket. My equity sleeve is partly invested in dividend funds which replenish bucket 1. Per asset location guidelines, my taxable bonds are in pre-tax accounts, making up the majority of bucket 2. So bottom line, I feel like I realize the benefits of both approaches.

  33. I prefer the bucket strategy but I’d love to see a side by side comparison for the lost decade!

  34. I started bucketing in 2004, the year after I retired. It took me about six years to tax efficiently get the right securities in the right locations. My initial bucket allocation by years was 70-30, but I was not comfortable with that. After some email dialogue with Ms. Benz at Morningstar I did a manual override to 65-35. I have 14.4 years of spending in buckets 1 and 2. (I added years of spending to my allocation spread sheet after your last blog on this topic. If using an 11 year target, I would be 77-23 today.

    I agree with the primary conclusion that over the long run, more in equities is better. I liked the bucket approach as more rational than an arbitrary 60-40. But one could argue that 11 years in buckets 1 and 2 is also arbitrary.

    I use a different rebalancing strategy of +/- 25% of any sub-allocation, or 5% absolute. This provides less judgement call on years not to rebalance. e.g. my Total Equity target is 65%, +/- 5%, and my International Equity target is 18% +/-4.5%. I adjust only when out of range, and not necessarily all the way to target. Thanks to Larry Swedroe’s books for this strategy.

    After living expenses, significant charitable giving and even more gifting to kids and grandkids I’ve seen an annualized growth in net worth of about 5%. And there is not much real estate (home) in that number.

  35. The first thing I noticed is the bucket strategy started with a heavier equity AA and whether right or wrong I predicted it would win, which is the exact opposite of most studies, but would be highly subject to the size of the cash bucket compared to 40% fixed income of the 60/40. When 40% is larger than the cash bucket it (the 60/40) should lose, which it was, and it did lose. Not much thinking involved here as typically the cash bucket has lower returns. Long-term, holding a cash bucket of any size, over about 10%, will decrease your returns over 100% equity portfolio. That is not new news.

  36. The size of portfolio and yearly burn rate will also play important roles. Larger starting portfolios and lower burn rates will mean more money in bucket 3 and higher returns. There are many variables to model, maybe this is splitting hairs!

  37. Thank you for this excellent analysis. I am a big fan of the bucket strategy, and I intend to use it when I retire. However, my concern with this strategy relates to “not buying the dip” as you mentioned. A research article my Michael Kitces entitled “Managing Sequence Risk/Bucket Strategies vs. Total Return” stated the following:
    “The second key issue is to recognize that decision-rules strategies liquidating from various
    buckets may be insufficient to sustain retirement as well. Not because they’re ensuring that
    equities don’t get sold when they’re down, but because they fail to buy even more when equities are
    down. In other words, the bond and cash buckets need to do more than just generate retirement
    distributions when equities are down; they also need to be deployed to proactively buy more
    equities after they’re down (something that automatically occurs with rebalancing, but not with
    buckets alone), an indirect methodology that ensures the retiree “sells high and buys low” to
    enhance long-term returns.”
    My plan to overcome this complication is to hold a bond fund in addition to the bond ladder for rebalancing purposes. The bond ladder would provide annual income for 5 years or so. As mentioned, the bond fund would be primarily for rebalancing, but could also be tapped for spending in the event of a prolonged down market. I would love to hear your thoughts about this strategy.
    Thank you again for this analysis and all of the wisdom you share with others.

  38. I would also like to see a comparison with the lost decade. Also, I’d like to see how you might have tweaked your bucket “rules” as you drained down your cash and bond buckets to very low levels (not knowing the future) in the last couple of years of that lost decade.

  40. With that low of a withdrawal rate, your strategy really amounted to “don’t spend much money.” It would have worked fine pretty much in spite of whatever portfolio you chose, with the only question being how much additional accumulation you had.

    So what you really lost or gave up was the years of not spending more between 2018 and now.

    But there were many other options you could have chosen that would have done better (and were safer if conditions would have been worse) because neither of those strategies are really well diversified. The upshot is that you could have easily been spending 5% instead of only 3.3%. Basically 50% more than you did. Or have retired earlier if you would have liked.

    That would actually be the more interesting analysis — how much spending did you leave on the table and how can that be remedied moving forward before age 70?

    We’re not getting any younger, that’s for sure.

  41. I tend to disagree though neither of us knows the others situation about spending. I am a rather simple person that spends for what I need and want. Not an extravagant life but certainly very comfortable. Fly business or first class since turning 75. Drink mid/top shelf bourbon. Enjoy fine dining. Not at all concerned about what I may have left on the table as us baby boomers have screwed our kids and grandkids with all the deficit spending and huge national debt. They will likely need all they inherit.

    1. Yes we do here, as it has been posted publicly.

      But if your erstwhile heirs need money, why don’t you give it to them now? That would make the most sense and everyone would be better off and a lot happier. And that is really why you want to spend more — so you can give with warm hands and everyone can bask in the glow, not with cold dead ones that make people wonder why you were so tight-fisted and grumpy while alive. I mean, how do you want to be remembered? Those memories are the real legacy, not the corpus of your corpse.

      There is actually an art to wealth transfer than most of us would benefit from pursuing because it improves relationships. The expert in this area is an advisor named Jim Grubman who has written a number of books about it.

      Even old dogs can learn a few new tricks if they are up for the challenge to truly live their best lives in the final stretch.

  42. Actually I do give generously to my kids, and grandkids 529s. And thinking about more if willing to file a 709. They don’t need it now. Also generous charitable giver. Love QCDs. Thank you for the tip about Grubman. Will check him out.

  43. Fritz, thank you so much for your teaching and advice. I know you provide great insight with you sharing your experiences. Thank you for the time you dedicate because I have learned a lot. This information has been immensely helpful to my retirement journey. I am 4 years past the starting line and loving it.

  44. Great analysis between the two approaches. Would definitely be interest in a comparison in a different market condition, as suggested. Shouldn’t be that drastic of a difference (I imagine) but would be interesting to compare apples and oranges.

  45. Fritz, Math is math – can tilt to defend any position by the assumptions and time period used. As you pointed out, this anylysis was done in a rising market which favors the bucket approach as the stock split keeps rising through the year. Even more important is the choice of 60/40 comparison vs something higher in a rising market. As your bucket always held more in equities it is a given that the “bucket” will do better in a rising market. Either will do the job I suppose but one’s personal gut reaction of what “feels” riskier is probably the biggest factor in what fits any individual.

  46. Portfolio backtesting comparisons over much longer horizons and market conditions (at least 40-50 years) is of much more interest to me. I urge readers to check out portfoliovisualizer.com, portfoliocharts.com, and testfol.io. One can hold virtually any portfolio at a 3.0-3.5% withdrawal rate and successfully underspend (?underlive/undergive) in retirement and die with their highest net worth. Living giving and impactful timely generational wealth transfer are important parts of our “retirement spending plan” and retirement portfolio constructions delivering a 5% SWR.

    1. Thanks for the resource links, Bill. I agree it’d be great to do a 40 year backtest on The Bucket Strategy, but I’ve never found a site that can do that (given the ability to choose not to refill Bucket 1 in a given year).

      Also, the SWR is an interesting topic. Back when I retired in 2018, everyone was firm on 3.25% (Big Ern, Morningstar) to 4% (Bengen). It’s interesting how everyone is now saying that’s too low. Even Bengen revised his approach, citing more diversification options now than when the Trinity Study was done.

      Regardless, I chose a SWR that was common in 2018. In reality, using a higher SWR wouldn’t really change the macro conclusion, since the same SWR would be used for both scenarios. (Obviously, both portfolios would have a lower closing balance, and there may be some small impact from rebalancing differences, but the general conclusion would be the same).

  47. Thank Fritz. Always love your insights. I’ve been following your posts for several years & it’s helped me to feel confident about retiring though a few years behind you. One curiosity I have is that your withdrawal rate of 3.3% is conservative. How does it look with a more aggressive 4.5% withdrawal rate? Keep writing but more importantly continue enjoying!

    1. Thanks for being a loyal reader, Ken. See my note above your comment about SWR. Interesting topic…

  48. Good afternoon Fritz. I just recently started reading your financial articles. Your conversations with Christine Benz, Dana Anspach and I believe Jean Chatzky have also been very informative. Thank you for sharing your knowledge and insight!! My question is regarding individuals and couples who are blessed to have multiple sources of guaranteed monthly income, social security check(s), defined benefit pension check(s) as well as single premium immediate annuities that cover all of their monthly essential spending with a significant amount of money leftover at the end of the month. Critical mass!! Consistent, recurring, uninterrupted, unchanged, ongoing monthly income with free cash flow to boot. Does the bucket strategy or 60/40 portfolio even matter to these individuals and/or couples? Just curious about your thoughts on this. Thank you.

  49. This was an excellent, extremely well written post – very informative and quite interesting.

    Like several others, I would love to see an iteration showing this comparison for the lost decade with 60-40 and 65-35 asset allocations, with a 3.3% and 5.0% withdrawal rate although I’m not expecting you to do one with the higher SWR, given how time consuming it is for you to create these scenarios.

    I was wondering if there is a way, using the three specific investment options in this post, to create a spreadsheet your readers could use to plug in the variables they would like to modify to build their own customized analysis. Specifically, the asset allocation (stocks, bonds, and cash) annual withdrawal rate, time period for the scenario, etc.

    If you or someone who is “spreadsheet savvy” could do that and make it available to your readers, I expect it would be welcomed by and helpful to your blog followers.

  50. I’m using my first comment on your blog to cast my vote for seeing the Lost Decade. To see the results of 60/40 vs bucket in a good market vs a bad market would be the complete analysis. Thanks.

  51. Retirees are Not robots. Both methods are somewhat Rigid in their rules. I retired in January 2022 at 59-> 60/40 portfolio. But I held Cash equivalents and short-term bond funds. Stocks were mostly Value-dividend stocks. Luckily I had 18 months Cash from a sale of a home. I have been increasing risk also as Pensions came on-line. Now have a balance of Value stocks and Growth stocks and increased Bond duration. But I have Zero issues rebalancing Stock/Bond/Cash portfolio when “prudent” -> April 2025 (Massacre week). Also I have Zero issues letting Stocks (%) increasing -> let it ride. A retiree does not have to be so rigid in either Method. I make quarterly withdrawals to pay the Tax man and do minor rebalancing then also.
    I will not take SS until 67+ then-> Equity allocation will glide path higher.
    Rollover IRA -> 3.5% SWR. Roth IRA-> Zero.

  52. Fritz, thanks for the detailed modeling — really useful to see the year-by-year breakdown.

    Two respectful pushbacks. First, as others have noted, this is a single 8-year window that was overwhelmingly favorable for equities. More equity exposure winning in a bull market isn’t really in dispute. I’d love to see this same comparison run through the lost decade or the 1970s — I suspect the $241k gap shrinks dramatically or reverses.

    Second,framing “not selling stocks in a downturn” as a clear win captures only the defensive side. I would add – systematic rebalancing does something the Bucket Strategy doesn’t — it mechanically forces you to buy equities at a discount during downturns. That contrarian discipline is arguably the biggest mathematical edge of a target-allocation approach, and it’s an opportunity cost the Bucket Strategy quietly absorbs.

    Buckets clearly have psychological value — knowing 11 years of spending is covered is a powerful behavioral anchor. But that’s a different argument than a mathematical one, and the limited sample makes it hard to draw the broader conclusion.

    Great series — keep it coming.

  53. Fritz: Thank you for this post. It (and a number of your others) has been very helpful for me. Many of your readers are much more informed than I. I do not enjoy the zillions of detailed, slightly-different options/details that can affect outcomes, the math, the fine-tuning that makes handling retirement finances almost a hobby for many. I suspect my portfolio is also smaller than many of your readers, although many would be surprised if they knew the net worth (excluding my home) this single mom is worth after a very average-paying career. All that to say: I appreciate you! The straight-forward comparison of the two strategies and the simplicity of each was easy to follow and is something I could easily implement. My “strategy” after retiring early? I am choosing to live inexpensively (1.8% withdrawal from my non-taxable Roth) to supplement my small pension until I begin SS…maybe at 65? This has guaranteed me eligibility for the ACA and has given the bulk of my portfolio an additional 5 years (thus far) to grow until I am closer to “real” retirement age. I have never and do not need to live extravagantly; this plan has covered not only my needs but really anything I have wanted (a cruise, last year. A new roof this spring.) As a single woman, financial security and not being a financial burden for my children one day are my highest priorities; any simple, direct ways to do that – such as the two you model here – are tremendously appreciated. This was like Goldilocks: not too hard, not too soft, juuust right!!

  54. Fritz,
    I am a new-comer to the party. Your buckets strategy is just the thing I needed to calm my concerns about market volatility in retirement. I am now in the process of restructuring my portfolio to create the buckets. For the first time, I have real clarity and confidence in my financial plan.

    For me, the greatest benefit to the Bucket Strategy is the change in mindset. I now have 11 years to ride out a market tumble! Fantastic! Now, I know I can stay in the market while it recovers rather than be a fear-driven seller when the Bear is afoot. Thank you so much for your investment of time, thought, care and energy to your blog. You readers are beneficiaries of your labors.

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