The Bucket Strategy In A Bear Market

The bear has come out of the woods.

The question is:  were you prepared?  We implemented the bucket strategy as our defense when I retired 4 years ago, and this year we’re facing our first real test of the bucket strategy in a bear market.

After averaging a ~15% return for the first 3 years of my retirement, the market is undergoing a correction phase. Given the above-average returns in the market since 2009, it’s not surprising that we’re facing a reversion to the mean. Sequence of Return Risk is real and defending against it must be a fundamental part of your withdrawal strategy as you position yourself for retirement.  

I’ve been vocal about our use of the Bucket Strategy, and have written a series of posts on the topic.   Today, I’m adding the latest article to the series, “The Bucket Strategy In A Bear Market,” to explain how the bucket strategy worked for us during this year’s bear market, including the steps we’ve taken to manage the buckets throughout the year. 

The entire series is outlined below:

the bucket strategy

The Bucket Strategy Series:

As outlined in the first two posts of the series, our main purpose in implementing the Bucket Strategy was to build a defense against Sequence of Return Risk, simplify our retirement withdrawal process, and develop a system that would allow us to sleep well at night regardless of market conditions.

The Big Question:  How is The Bucket Strategy holding up in the bear market?

Today, I answer that question.

How is The Bucket Strategy working in the current Bear Market? Today, I answer that question. Click To Tweet

how the bucket strategy works in bear market

The Bucket Strategy In A Bear Market

The bucket strategy series has been one of the most popular series I’ve written on this blog, and I’ve had numerous readers ask whether the Bucket Strategy in a bear market is meeting my expectations.  

“What are you doing with your buckets?” is a common question.

The Bucket Strategy is designed for years like this, with “Bucket 1” holding 3 years of liquidity (primarily cash) to fund retirement spending without being forced to sell equities in a down market.  As a quick refresher, below is a summary of each of the three buckets from the original post:

As I outlined in that original post, our strategy has always been to refill Bucket 1 when markets are good, and draw it down when markets are bad:

“Several times per year (I’ll target quarter-ends) look for any asset class which has performed well, and sell portions of those investments to refill the cash in Bucket One.  If (more accurately, when) we enter a major bear market, draw down the level of Bucket One for 1-2 years to allow time for your riskier assets to rebound.”

And that, essentially, is exactly what we’ve done.  It’s always good to have a plan in place before a market event occurs, then simply review your plan and implement what you designed during calmer times.

If you’re alert, you noticed the word “essentially” in the previous paragraph.  In fact, we have done a few things that are worthy of sharing.  I’ll touch on those in the next section.

PS – I recently came across Ben Carlson’s “How Should You Choose Your Asset Allocation?”, and was pleased to see a very similar strategy outlined by a reader named John.  That article is worth a read if you want another point of reference for the strategy I’ve implemented.

Bucket Strategy Actions Taken This Year:

Following are all of the steps we took while managing the bucket strategy in this year's bear market. Click To Tweet

January:  On January 5th, we topped off Bucket 1 bucket per our Year-End Financial Review protocol.  On that date, the S&P 500 closed at 4700, near its all-time peak.  We sold some mutual funds in our after-tax account and moved the proceeds to cash in the amount necessary to fill Bucket 1.  The date of the sale/refill is highlighted by the red dot below: 

managing the bucket strategy in a bear market jan 3

S&P 500 5-year history – last Bucket refill executed Jan 5th.

Note:  We refilled Bucket 1 quarterly from 2018 through January 2022 to ensure it was always “full”.  

March / April:  Unfortunately, my Dad passed away on February 22, 2022.  He had two life insurance policies he had maintained for years, and my sisters and I each received a payout from the policies.  The payout exceeded our YTD spending, so we refilled Bucket 1 and kept the surplus in our CapitalOne360 Money Market Fund until we could decide what to do with it.

May / Sept:  Given the fact that we had “excess cash”, we followed a similar strategy I had used successfully during the 2020 market downturn, as outlined in A Strategy For Buying Into A Bear Market.  We executed two purchasing tranches on May 20 (S&P @ 3901) and Sept 27 (S&P @ 3630) to consume the excess cash remaining from the insurance payout.  The purchase dates are shown as green dots on the following S&P 500 price chart:

I’m continuing to “buy the dips” with any excess cash on hand

June:  We turned on the “drip refill” I had outlined in How To Manage The Bucket Strategy, summarized below: 

A note about dividends.  You could choose to redirect any dividends into your MMF rather than having them automatically reinvested.  This could serve as a slow refill of Bucket 1, reducing the amount of refill trades required.  We’ve not yet taken this move, but I’ve considered it.

Throughout my career and first 4 years of retirement, we had automatically reinvested dividends back into the mutual fund they were generated from.  Given the ongoing bear market, we finally decided to pull the trigger on the drip refill, and now have the dividends deposited automatically in our MMF rather than being reinvested.  This reduces the amount of selling required to refill the buckets, and I suspect I’ll keep it in place from this point forward.

August:  We executed what I’ll call a “Roth Fungible Exchange” in August.  Bear with me as I attempt to explain.  We had some cash in our Roth accounts that I was considering Bucket 1, but didn’t want to pull any funds from the Roth if we could avoid it.  Based on a review of my Dad’s (now our) holdings at his broker, we found an after-tax mutual fund he had owned that didn’t match my investment criteria (higher expense than we could get at Vanguard).  I instructed the broker to sell the mutual fund and transfer the cash to our checking account.  On the same day, we invested the same amount of cash from my Roth account into some Vanguard mutual funds (being careful to ensure they were sufficiently different than the one that was sold to avoid the IRS “substantially identical” rule, since this was a form of Tax Loss Harvesting).

Essentially, the “fungible” move allowed us to maintain the same asset allocation, but “virtually” move the cash from a Roth to an after-tax account (and, at the same time, move the mutual fund exposure from an after-tax to Roth account).  I trust that’s clear.  While it didn’t increase the cash allocation in our buckets, it did move the cash from a Roth to after-tax, allowing us to access it from after-tax funds without reducing our Roth holdings.  It also “moved” the stock exposure from after-tax to Roth, where it will grow tax-free for years to come.

September:  We executed our annual Roth Conversion in September.  While not a component of The Bucket Strategy, it’s important to highlight that managing our Withdrawal Strategy is more comprehensive than simply managing the buckets.  To optimize taxes over the duration of our retirement, we’ve been aggressively converting pre-tax IRA money into Roth accounts every year.  2022 was particularly attractive for conversions given the bear market (more shares moved for the same $ amount) and the potential 2026 expiration of our current favorable tax laws.  We conducted a 6-figure conversion in 2022 and are planning to do the same for the next few years (at 59, I’d like to convert as much as possible before IRMAA premiums start being impacted 2 years before we begin Medicare).

Also worth noting, in the event the bear market continued to the point where Bucket 1 was dangerously low, a contingency plan was to skip the Roth conversion for a year.  The conversions cause significant tax expenses (paid via Estimated Quarterly Tax Payments), and skipping a conversion in any given year would dramatically reduce my short-term expenses, extending the effective duration of the $ in Bucket 1.

November:  I’m developing a new relationship with my Dad’s broker, and we’ve had occasional phone calls since my Dad passed.  We’re considering keeping my inherited assets with the broker as a bit of a “test” in the event I no longer wish to handle my investments, or as a contingency plan for my wife when I pass away.

On November 4th, he suggested we consider selling our Lockheed Martin holding that was in my Dad’s account.  As shown below, the stock was at an all-time high and the analysts’ ratings had moved from “buy” to “hold/sell.”  Given the counter-cyclical rise of the LMT stock, we decided to sell it at $479/share, as shown with the green dot below (LMT stock price history from

We sold LMT on Nov 4th after a counter-cyclical rise

I instructed my broker to maintain the cash in our account until early January when we’ll complete another Year-End Review and make our decision on how best to utilize the cash.  It was a sizeable holding, and I suspect we’ll use any remaining cash (after ensuring Bucket 1 is full) to complete our mountain homestead expansion project. (BTW: A quick update on that project:  the excavation was started earlier this week…we’re officially underway!)

Spending Pattern In A Bear Market

Finally, a note about our spending pattern during this year’s bear market. 

While it wasn’t intentional, our spending has come in below the forecast we used in our retirement cash flow projection.  Given that our RV trip was canceled due to COVID, we spent far less on travel than the $10k/year we budgeted.  Add in the fact that our cost for health insurance is also below budget, and we’re spending more low-cost time at our paid-for second home, and the result is that we’re pulling at a Safe Withdrawal Rate of less than 3% based on our 12/31/21 account balances (in spite of inflation’s reappearance). 

Realizing our net worth has decreased* since 12/31 (and SWR has, as a result, increased), we’re comfortable with the reduced spending.  Of course, there is that homestead expansion, but since that is being funded by an inheritance we hadn’t planned for, I’m excluding that from our “traditional” spending calculation.  

For now, we’re comfortably enjoying life and not worried about the recent market performance.  I’m looking forward to doing a deep dive analysis during our once-per-year financial review in early January.  I expect we’ll return to our focus of spending vs. saving in January, but I’ll wait to run the numbers before finalizing next year’s retirement paycheck.

* NOTE:   I have no idea how much our net worth has been impacted – I only check it once a year as part of our Annual Financial Review.

6 Lessons Learned About The Bucket Strategy In A Bear Market

Following are 6 lessons we've learned about the bucket strategy in a bear market. Click To Tweet

So, what have we learned about The Bucket Strategy in a bear market?  Below is a summary of my thoughts based on our personal experience this year:

1) It’s Working

We’re well into our first major bear market since retirement, and the bucket strategy has met the objectives we were striving to meet.  We’re sleeping well at night, and don’t worry about the daily gyrations in the market.  Apart from the sale of the Lockheed Martin stock at record highs, we’ve not sold a single equity that’s declined. 

A Note About “What If”:  What if my Dad hadn’t passed away, and we didn’t have any options to refill Bucket 1 during the year?  I’m convinced we’d have been calm and patiently allowed Bucket 1 to “do its job” by allowing us to avoid selling holdings in a down market.  We’re comfortable with Bucket 1 getting down to <12 months of spending, if necessary, before considering selling something that hasn’t fully rebounded.  The plan is in place, it’s simply a matter of emotionless execution.  It’s a nice way to live life in retirement.

2) Fill It Before You Retire, And Keep It Full (when possible)

Develop your strategy, then implement it.

I always encourage soon-to-be retirees to ensure they’ve filled bucket 1 prior to the date of their retirement.  Sequence of Return risk is too significant to take a chance and assume you’ll be able to put it in place after your retirement date.  Folks argue that keeping 3 years in cash represents an opportunity cost (“you can make better long-term returns in stocks”), but I firmly believe that the real value of the cash is as an insurance policy against market downturns, like the one we’ve experienced this year.  I’m willing to absorb that opportunity cost for the peace of mind I’ve had throughout the current bear.

Once it’s in place, keep it full as long as the markets are participating.  Our quarterly refill process worked well through our first 3 1/2 years of retirement and provided protection in the event the bear market appeared late in the year.

3) Don’t Panic.

Once the bear market appears, don’t panic.  Realize you have 3 years of cash set aside and you’ll likely have sufficient liquidity to avoid selling stocks before a recovery.  Have a plan in place, then follow the plan. It’s reassuring to run this calculator at and realize the market has returned an annualized 8.24% since we retired, in spite of this year’s bear market.  As Ben Carlson points out here, the 10-year average return for a 60/40 (stock/bond) portfolio is also at 8% in spite of the current bear.

Returns will always be volatile, but two things really matter:

  1. Avoid selling stocks after a downturn.
  2. Focus on long-term (not annual) returns.

The bucket strategy has allowed us to do both, and the long-term returns since our retirement date are still sufficient to provide long-term growth and protection against future cost-of-living increases due to inflation.  Build an asset allocation that you’re comfortable with given your risk tolerance, then get on with living life.

4) Use unexpected cash inflows to refill the buckets.

In spite of the fact that both stocks and bonds are down this year, Bucket 1 remains full as we approach the end of the year.  Our unexpected cash was the result of my Dad’s passing, and I miss him every day.  Regardless, the reality is that in spite of planning $0 income in retirement we’ve had unexpected inflows every year (I wrote a book, make a bit of $ from this blog, and serve on a Board).  There’s value in planning conservatively, and having some surprises to the upside.  

5) Look for counter-cyclical winners

We had expected to use bonds to fund our retirement spending in the event of a bear market, but they haven’t been cooperating this year.  Fortunately, my Dad invested in individual stocks and we were able to find a “winner” (LMT) in spite of all the carnage in the streets.  In the worse case, we would have continued to draw down Bucket 1 for two more years, and I fully expect we’d have been able to find something to sell to refill the bucket before it was entirely depleted.  As a last resort, we could have sold whatever had “declined the least” to generate cash if required.

6) Don’t Be Afraid to Buy Stocks

When you find yourself in a situation with “excess cash”, recognize that buying in a bear market can be a viable strategy.  Purchasing stocks after a decline actually reduces your risk of loss and increases your odds of greater long-term returns.  Make sure the money invested is not money you’ll need to cover your spending for at least 3 years and recognize there could be further losses before stocks ultimately recover.  It’s not for everyone, but I’ve done it for the past 35 years and my risk profile supports the strategy.  If you’re thinking about it, make sure you recognize all of the risks and implement a system rather than relying on instinct. 

I’ve outlined our system in A Strategy For Buying Into A Bear Market if you’re interested in the details. 


With almost a year of actual experience, the bucket strategy in a bear market continues to meet the objectives we were targeting when we put the plan in place.  We recognize there’s some opportunity cost in holding 3 years of cash, but view that as an insurance expense that’s paying us back in spades during this year’s bear market.

Having some cash is an effective approach to avoid the damage sequence of return risk can have on your ability to fund your remaining years of retirement.  Don’t panic and sell stocks (or bonds) after they decline, but rather develop a long-term strategy and focus on emotionless execution.

If you’ve been uncomfortably nervous this year, re-evaluate your asset allocation and strategy for funding your retirement expenses.  The bear will go back into the woods soon, only to reappear again in a few years.  Look for opportunities to build your defense, and design a plan to deal with the bear.   

The bear may hide from time to time, but he’ll never go away.

Don’t let him spoil your retirement.

Your Turn:  Did you have a plan in place prior to this year’s bear market?  How has it worked out? In hindsight, what would you have done differently? Finally, what advice would you give to someone on the cusp of retirement?  Let’s chat in the comments…


  1. Interesting Fritz and glad things are working for you, if you can keep it going well in this year with virtually everything down then you’ve tested the strategy well.

    While I’m not fully retired yet when I am I plan to supplement my graphic arts income with dividends from my after tax investments to keep my Bucket 1 filled. As you mentioned above I’ll simply switch my dividends from being reinvested to going to a MMF. Those two income sources alone should fund my lifestyle. It’s a great position to be in.

    1. Dave, thanks for the early visit. I agree using the dividends as a “Drip Refill” works well, I don’t know why I waited so long to make that change. Congrats on the graphic art business, glad to see that side hustle turning into a real purpose for you as you make the transition to full-time retirement.

    2. Fritz, This year was my first year of retirement. I’ll have to say I wasn’t sure about the bucket strategy at the time. People I trusted told me that was to much cash to have out of the Market. I retired December of last year. I decided to go with the bucket strategy and I’m glad I did. Watching the market go down day after day my first year in retirement was concerning. But, I had no problems sleeping at night due to bucket 1. I’m sticking with it. It has provided great comfort knowing we have bucket 1. I may also have my dividends put directly into bucket 1 instead of reinvesting. Thanks again for all you do.

    3. Dave,
      perhaps you and Fritz can collaborate on a Bucket Strategy Infographic?
      Would be a great visual aid!

      I’m following your situation/strategy closely. I’m 3 years FIRE’d and the SoR Risk gave me quite a scare in 2020 as a freshly minted retiree. I allowed our allocation to move up the risk curve a bit and will need to re-think our comfort level. Our plan is Bucket based but more of an allocation approach within some main accounts than dedicated accounts for each bucket. My wife joined me this month and the ability to replenish MMF Bucket with her paycheck has vaporized. We too employ dividends to trickle into MMF and hopefully that will stretch the need to replenish.

      Have you planned for Bucket 1 to fund big ticket items like car/truck replacements, weddings, or larger emergency items in the base calculations?

  2. Fritz great update. I have been wondering how your strategy has been holding up. As I put together my buckets, my struggle is with “withdrawal rules”. Obviously wanting to sell stocks when they are up but up versus what? Thanks for the insights!

    1. Cathy, I thought that would be challenging when I was first setting it up, but as I explained in How To Manage the Bucket Strategy it turned out to be pretty clear as I looked over my portfolio for the quarterly refills. I didn’t have any hard and fast rules on what trigger I would use to determine what to sell, but in my case that amount of rigidity wasn’t required (in fairness, a long-term bull market certainly made it easier).

  3. Good morning Fritz! As we’re going through the beginning stages of our retirement journey, I have referred back to your bucket strategy series more than a few times. They keep me focused in the right direction! Thanks!

  4. Fritz thank you for demonstrating that the Bucket strategy has worked for you during these volatile times. The “Fritz Buck Strategy” Tab of my retirement Excel workbook has worked wonderfully for me as well. Admittedly, I had to sell some of my bonds while depressed this year to fill my cash needs near term, I largely did this on the brief moments of recovery, nonetheless, I used the losses to offset LTCG. Additionally, I have taken advantage of my depressed IRA asset and converted to Roth while minimizing my taxable income. Another way I look at this strategy and how it effects SORR, is looking at my portfolio at retirement in Jan 2018 versus where it is today. Despite the bears, recoveries, dips, volatility, and living off my portfolio, I am still up 27%.

    1. I have a worksheet tab named after me? I’m honored! 😉

      Good point about the overall trend of your portfolio since you retired. I track the same thing (and actually compare it to the original cash flow projection I put together 2 years before retirement) and am ahead of projections in spite of the bear.

    2. It’s certainly been a wah wah wah year. Dow down 6%, S&P -17%, NASD -29%, and all of my bond funds losing in the teens, unless you have a windfall, and are in index funds, you are taking a significant loss of principle if you have to refresh bucket 1. I’m currently at 2-1/4 years in cash, which is the only thing making money.
      I guess I am fortunate to still be working with the start line moving out yet again. Considering whether to plow all remaining retirement contributions into cash, despite the good investment opportunity. I need to get to three years in bucket 1 and pray for a recovery. With the state of our global economy, I’m not sure we will see the growth from the last 10+ years again in our lifetimes.
      Enjoy the holiday season! Thank you for all that you do!

  5. Wonderful write up Fritz. Did you ever consider not refilling your bucket 1 a second time now that you are several years into your retirement? The Big ERN talks about a glidepath strategy to reduce your risk. If you decided to not refill bucket 1, I think that would be similar to the glidepath. Just curious if you had any pros or cons on the 2 strategies (Bucket vs. Glidepath). This year has provided the perfect test-case scenario. Thanks

    1. Big ERN and I have fun challenging each other’s thinkings, but in reality we’re more aligned than not (he’d agree on the risk of SORR and the value of holding some liquid assets, especially in the early years of retirement). Over time, I’ll likely reduce Bucket 1 and increase equities, but I’ll likely wait until SS kicks in before making that change.

      1. How much SORR do you think you have with a swr less than 3%. However, I guess your expenses are less than expected this year. Curious what you budget for in expenses annually in regards to a swr percentage? Even with no soc security a swr of 3.25% would have never failed historically over the last 100+ years. I would imagine you are going to receive a nice soc security in the future. I would think having a 3 year cash bucket is way too conservative with your swr percentage going forward? I could see having one though if you were spending to your means with a much larger swr.

  6. Hi Fritz, been enjoying your blog over the years and have implemented a bucket version a little different than yours, but with similar implementation intentions. In my case, retired at the beginning of this year and basically structured a 10 year bond ladder (including about 1 1/2 years of cash in money markets), letting everything else ride in the stock market. This puts my overall AA currently around 67/33. My wife and I are 58 and have a relatively high planned annual spend which is mostly discretionary. Even still, our withdraw rate is under 2.75% based on today’s balance. Being year 1 for us, I am tip toeing my way out of the gate erroring on the side of being too conservative, especially having anticipated some kind of real near term SORR after the long bull market run. None the less, I start to scratch my head when it comes to implementing my “refill rules”. Ideally, since I retired at end of 12/31/21, I would use that portfolio balance (of course, a market high) as the marker plus some level of increase before I tap into equities. Alternatively, I could “re-retire” all over again say today (or end of the year) and move my marker to that respective portfolio balance as my WR is still in check. Right now, I am leaning towards my original plan and just wait for my portfolio balance to exceed the 12/31/21 value. I suppose there is no real wrong answer as long as the numbers work, but curious as to how you (others) might wrestle with this?

    Keep up the great work!

    1. David, if I were doing it again in today’s market (given the higher yields now available on bonds), I’d seriously consider the bond ladder approach. It certainly would have been helpful to have bonds maturing each year instead of having to look over the portfolio to see what can be sold to refill Bucket 1. I’ve considered building a bit of a ladder with some of my bucket 2 funds (for years 3-10), but haven’t gotten around to it.

      Good question on your “marker” (12/31/21 or revise). In my case, I calculate my new SWR every year as I update my Net Worth, and have consistely fallen well below 4%. In reality, I’m not too worried about the “marker” unless I exceed 4%, and look at the refill process more opportunistically given the current market dynamics. We’ll see how my view evolves as the market rebounds, which at some point it most certainly will.

  7. excellent post, fritz! i really enjoy the old “nuts and bolts” of finance post, especially from a person who is doing what i want to do. nice job in liquidating that lockheed stock, especially at the stepped up inherited stock basis! the old government still has a few gifts up its sleeve i guess. also, that macrotrends site is wonderful and i use it almost daily to do quick 5 minute stock/company evaluations. we too have a handful of holdings in “safety/value” stocks that have hit all time highs in the past couple of months.

    we have been withdrawing from an after tax bucket to replace my wife’s part time income for the past year while i still work (for now). i did one smart thing at the end of ’21 and that was raise about 4 years spending cash in my 401k near all time market highs. i turn 55 coming year and the rule of 55 says i only need to survive another month at my thankless J.O.B. and can access that money any time after jan. 1 without penalty. happy holidays to you and your family!

    1. freddy, yeah, the finance posts are always popular, though I’m writing them less often now that I’m fully transitioned and not thinking about the money side of things nearly as often.

      Good timing on raising that cash, I’m sure there are plenty of readers who wish they’d have had the same foresight a year ago. It seemed obvious to me that the market was overvalued, and selling some equities to build some dry powder was a good strategic move given the market environment at the time.

      Finally, gotta love that Rule of 55. I hope it gives you the level of comfort to exit that thankless J.O.B. and move on over to this side of The Starting Line!

    1. Fritz – excellent article (as usual). Your timing and action couldn’t have been planned any better. I haven’t had the need to sell any investments this year and continue to use cash that I set aside when I retired Dec 31 2021. I have not been as methodical as you at this point but after 18 months of interviewing and evaluating financial planners, Ive selected one that fits my needs and will engage at the beginning of the year. I am ready to turn many of these decisions over after many, many years. Your articles are inspiring and still working through the many stages of retirement after 11 months. It was nice meeting and have lunch with you in September. My wife, Daughter, Niece and I visited Greece after our meeting. I wish you and your family a joyous, safe and blessed holiday – Mitch

  8. Fritz
    I’m in my 1st year of retirement and I am using the bucket strategy. I have two high-schoolers still at home so I’m a bit of a hybrid. Retiring into a Bear Market & double digit inflation should have been a real horror story but I planned very conservatively and we still look safe. In hindsight, I would have wished we had started out with less bonds and a smaller bucket 2. I see my bucket one cash is holding up well so in January during our annual review I am working toward cutting bucket 2 in half and going 100% TIPS there and add the rest to stocks. I really think in time I may move to two buckets (cash/stocks). I expect to emerge from this Bear with a major market rally with gains to replenish my cash bucket. Since I keep 5 years expenses cash in bucket 1 I expect to outlast the Bear. Thanks for all you do!

    1. Ah, the joy of planning conservatively, right!? Tough to look back at bonds’ underperformance, a unique year for sure. I don’t have a problem with 2 buckets (cash/stocks), the biggest issue is avoiding SORR, which you’ll be protecting with your 5 years of cash. I also hold some TIPS among my bond porftolio, glad to have them with their outstanding yields this year. I’ll still keep bonds in the mix, I suspect the outpeformance of cash is an outlier. Only time will tell…

  9. Excellent post Fritz, so many good points. I will definitely implement the drip refill strategy. That was not on the radar but makes a ton of sense. I’m struggling with a full on Roth conversion strategy as it guesses at future tax rates but when one looks at projected RMD profiles and brackets, I’ll probable do a compromise approach somewhere in the middle. Many thanks for your insights!

    1. Allen, glad to hear the Drip Refill was a takeaway for you, definitely a good setup for the buckets. As for Roth conversion, I agree it is a guess at future tax rates, but I also know I’ll have SS income when those nasty RMD’s kick in, so doing what I can do before the SS and IRMAA triggers become an issue. No problem with your “compromise” approach, but I do think Roth conversions make a lot of sense for most people (ACA subsidy impact aside, which is reason enough to avoid them if you’re getting those subsidies).

      1. Hey Fritz, speaking of subsidies, your annual income may always exceed the point where you can get any, but let me tell you those last few years on ACA before Medicare are a fright show. I just looked up my ACA options for 2023 (age 64) and if I didn’t have a subsidy I’d be paying $1269-2400/month for a Silver plan, and if no subsidies the out of pocket expense for ACTUALLY using the insurance would skyrocket. Even the Bronze plan with outrageous MOOP & deductibles would be in the $1k/month range. I certainly see why so many people skip insurance altogether in their last year or two before Medicare kicks in.

        I also have made a grave error in not selling my farm 2+ years ago, because it looks like the LTCG will trigger an IRMAA surcharge for a year unless I am overestimating what it will sell for. And I’ll get nailed twice – once for 7 months of 2023’s ACA subsidy, and again for 12 months of IRMAA in 2025.

  10. I like your analogy that the cash is like an insurance policy which is similar to an emergency fund of 3-6 months while someone is working – yes both could be earning more but that’s not the point! Very informative post today and strategy is working nicely- thanks for sharing.

  11. Gary, I see your point in holding too much in bucket two. I have a government pension, so that should just replace my bucket two.I should basically have money that I would like to spend in bucket one and everything else in bucket three to catch the growth.

    1. David I have a similar situation. I’m taking SS early due to having minors at home so I will draw my family maximum for 3 1/2 years plus a small pension. I believe the market will come back within less than 5 years so I set up bucket 1 with 5 years expenses & I guess retiring into the beginning of a Bear market will show me early in retirement. I was always conservative in saving for retirement but once I really studied the buckets I’ve gained confidence to hold more stocks in retirement than during accumulation. So far I sleep well every night in retirement.

  12. A note about using short term bonds in the cash bucket, the Vanguard short term bond fund with a duration of ~2.2 years has a loss in 2022. The lesson I learned is that there is no substitute for cash!

    1. I had the same “problem” with my short term cash needs invested in a combination of Vanguard’s short term and Ultra short term investment grade bond funds. I got out about mid-way through the decline and moved into their Treasury Money Market fund for principal stability and am now buying short term Treasury Bills through the brokerage account. I was astonished as to how quickly these “conservative” bond funds declined. I don’t mind the volatility in my equity assets but can’t accept this in my cash like holdings.

  13. Fritz,
    Thanks for the great post on using your “buckets.” I’ve been able to keep my “available cash” at a comfortable level by working part-time for the past several years. So, while the market declines it really doesn’t cause me any great stress. I’m talking 250 to 300 hours per year. Its not a big strain for me, and it keeps me from tapping my retirement money yet. Presently keeping most of my cash in six-month T-bills.

  14. Great post Fritz, I hadn’t head of the Bucket Strategy, but it’s certainly has some validity! You couldn’t have topped off your Bucket 1 at a better time in early January, and then your buys in March. As far as your fathers Lockheed Stock, looks like it too was a good time to get out. In the long-run it will likely continue going up, but given your circumstances, I think this was a great exit point. Hope you had a great TG and got to spend time with your Family!

    1. Sometimes it’s better to be lucky than good…

      (And yes, TG was a wonderful time at our second home in AL with our daughter/granddaughter).

  15. Fitz – This week’s article is a home run! I plan to implement a bucket strategy in retirement and I am slowly putting things in place today. With bull markets dominating for such a long time (yes, I do remember the 2008 downturn), real life examples of someone implementing the strategy in a bear market were hard to come by. Glad to see that things are working out well.

    One quick question – it seems to me that, once the buckets are established, the main risks are acting emotionally and being greedy. Greedy would be slowly shifting into equities during a bull run because of FOMO. Emotional errors would be panicky selling of equities as the bear rears its head.

    Does this sound right?

  16. Fritz,
    Thank you for your insights. We mirror each other in age and work (I did 29 years in 1 company)
    I use dividends and capital gains for Bucket 1.
    Not all are going into Bucket 1 because it exceeds the amount needed, therefore there is still reinvestment.
    Thank you again, this morning’s reading reaffirms my strategy.
    Best Wishes with the homestead expansion, looking forward to reading about it!

    1. Glad to hear the post was reaffirming. As for the homestead expansion, we’re excited about the activity getting underway and look forward to sharing the progress in a future post…

  17. Great post on your progress in retirement Fritz! We are blessed to have multiple streams of income to not “have” to withdraw in our future years of retirement. We retired over 7 years ago. Portfolio increases every 2 years. Bear market equity buying is what we have done with excess cash in the last 4 months. We will be happy 5 years from now on those returns, just like what we bought in Mar 2020. Our pensions allow us to be nearly 100% in equity holdings, but we are conservative and have just 80% invested. Plan on increasing our giving each year going fwd. CD laddering of our cash will work out pretty well to cover all our discretionary spending for the next 10 years or more.

    We are grateful for many things/people in our lives; your contribution to helping others make sound financial decisions in their futures…..well done young man!

    Wishing your family and all of your readers a happy, joyful and healthy 2023. May our Lord bless all of you with peace and love in your hearts. Look for the wonderful things in your lives and ignore the “noise”.

    Merry CHRISTmas Jackie and Fritz, Steve

    1. Thanks for calling me a young man! 🙂

      And, good for you for planning on increasing your giving, my wife and I are discussing the same. We are blessed, indeed, and it’s nice to be in a situation to help folks in need.

  18. after thinking tips(-4% ytd) and short term intermediate bonds(-7%ytd) were the answer I’m buying brokered CDs from Vanguard. 4.7% 6mos 4.9%18mos. I’m waiting until the Fed meeting in December to see how much higher they are going to raise the rate. CDs are looking pretty good right now.

    1. Ricardo, I bought my first CD in years a few months ago, I agree they make a lot more sense now…

    2. Hi Fritz, I always look forward to reading your blog.
      I retired from the federal government in July at age 55. I have a pension and a 401k (TSP) with about 2.5 years in cash (Bucket 1) 4 years in an Income fund (Bucket 2) and the rest in the stock fund. My question is this, if I implement your rebalancing strategy should I use use 1% of bucket 1 or 2 to put into the stock fund when the market goes down 5% or does it really matter. Also, is it 5% from any given starting point? Do I just wait and start with where the market is on January 1st?

  19. Excellent update Fritz! I too retired in 2018 and use the bucket strategy but wasn’t refilling quarterly. I am down to two years of cash left and hoping the recovery comes before that is depleted. Question for you. You wrote: “Realizing our net worth has decreased* since 12/31 (and SWR has, as a result, increased), we’re comfortable with the reduced spending.” My question is do you do your SWR calculation based on your net worth or on your actual spendable portfolio dollars?


    1. Bill – Every year-end, I calculate our total net worth, then subtract “non-spendable” items (cars, home equity, etc) to determine our “Retirement Liquidity” amount, which is what I use when calculating the SWR. Hope that helps…

  20. Fritz- I always enjoy your website articles, I feel you have one of the best websites on the internet. I can understand your thinking about stopping your DRIP and depositing into your money market fund, but I have kept doing my DRIP (I still have about 3 years in my bucket 1) because I figure I am buying low and when the market comes back I can sell high. Maybe I can do this because I have so much in bucket 1, but I’m like you, I can sleep soundly at night. What say you?

    1. Fair point about DRIPS helping you “buy low.” I agree that it does require a healthy balance in bucket 1 to not elect to use the dividends as a slow refill methodology.

      And, “one of the best websites on the internet” – WOW! Great compliment, much appreciated!

  21. Eight years ago when we realized the “RATS” race is no longer applied to us, we had to decide on two financial strategies going forward…

    1. The “2-Buckets” financial game plan – Cash and Stocks…
    2. The “3-Buckets” financial game plan – Cash, Bonds and Stocks.

    For simplicity, we chose the “2-Buckets” strategy, and luck was on our side as our assets doubled in 7 years without making a dime from side hustles or inheritance.

    Lessons we learned since the first day disconnected from the “RATS” race…

    1. The 3 years CASH will get you snoring loud at night. We will replenish our CASH chest in 2023 regardless of market condition as we are 8 years away from the crucial 1st year of FI.
    2. In 8 years, we did one withdraw at 4% due to an expected event. The rests were less than 3 percent.
    3. One strange fact that caught us by surprise in the early days, we spent more than we were working (note, this is no longer a surprise as we have came to a full understanding of the details).

    1. We have been married for over 30 years, yet we have learned so many more things from each other and our own children in the last 8 years in comparison to the previous 22 years.
    2. Since FI, we are keenly aware of our older friends and family members of the “RATS” race predicament. Without telling any of them that we are fully FI and inelegantly point them onto the path

    1. Again, it was luck that we both “CASHED” out in the “Goldilocks” time frame 40 – 50 years old. Meaning, any years earlier or later would have been bad

    By sharing our STATS, we hope the population of FI will be bigger for the BEST of humanity!

    1. Thanks for sharing some of the details of your journey, TE. I share your hope for humanity…

  22. Fritz,

    I’m impressed by how well you are managing the bucket strategy and equally so by your knack of “timing” the market (still remember you bought a large chunk on the day the market bottomed in March 2020). Good for you even though I understand that’s not what you’re intending to practice (market timing). Kudos nonetheless!

    Your mention of the “drip refill” reminds me to ask if you have considered investing in real estate (particularly private real estate funds rather than public REITs whose prices rise and fall with the general financial market too much for comfort) for dividend. If not, why not?

    1. I prefer to let Fritz respond on his own excellent writings, but I can give you something to consider with REITs. Public REITs are about 10% of my portfolio – mostly property but a couple of mortgage REITs. I like the NNN ones best. Many are down this year but they did temper my overall portfolio. So yes, the market value goes up and down, but the dividends tend to keep coming regardless and most increase them every year – except for Realty Income (O) – which somehow slices a penny into thousandths to do monthly increases. Private funds are more opaque – they still go up or down but you don’t see it on a daily basis. Should you want to exit – you need to follow rules of the private fund. I see a private REIT like a variable annuity – lots of costs and constraints that are not necessarily intended to favor me as an investor. Might work out great – just not my cup of tea.

    2. Bill (and Kevin), my real estate exposure is in my 10% Alternative allocation, and comprises REITs and Peer Street (peer-to-peer lending). I’ve heard about the private real estate syndication world, but haven’t taken the time to study it. In addition, I consider our second home in Alabama to be a real estate exposure, so I’m comfortable with the overall exposure to the asset class and haven’t felt any urgency to explore the other options (trying to keep things simple over here…).

  23. Enjoyed the post Fritz, as always. I’m 10 years into retirement now and have studied/followed your bucket strategy as closely as I can. Like you, it’s working well for me, I have no complaints and sleep well at night. I’m a little more conservative perhaps, with 5 years in cash. I have been told numerous times that I could make more money by having more of that cash invested, but once I discovered “enough” versus “more” my life got SO much simpler! So, 10 years into retirement, it’s amazing to me to be here. Although the market has been unfriendly this year, it will come out of this at some point. My overall trend has still been positive, including annual withdrawals, so your bucket strategy has worked well for me, thank you for the clarity and details which you have provided for the planning process.

    Keep writing, I look forward to every post!

    1. I can relate to folks arguing about the opportunity cost of the cash, but we’ll be able to use 2022 as our example for years to come on why we prefer to hold X years of cash. For each their own…

      Keep reading, I look forward to every comment! 😉

  24. Thanks for the update Fritz. Completing year two of mostly retired living I still fret about sequence. I have used a combination short bond ladder and CDs for my bucket one – but have 4 years worth. Took my annual withdrawal from traditional 401k in January and did a couple smaller Roth conversions during the year. I have not needed to refill the cash bucket yet, but will may need to this spring.

    I’ve learned my short bond ladders are not as “safe” as I had hoped and will likely bite the bullet on low CD rates in the future.
    Nearly all my bucket one is in traditional IRA account – I’d like to get it diversified into Roth and after tax but remain greedy by investing cash in those accounts into funds/stocks.
    I turn 62 next year so it will likely be my last bigger Roth conversion. Roth money is just over half of my assets at this point. I’m thinking I do not need to convert 100% as I will continue to pull from regular 401 k so future RMDs are minimized.
    Drips are now over 50% of my annual spend – I still haven’t turned them off though am tempted. What is very clear to me is that they are providing a nice dollar cost average bump as the market cycles through the bear. My YTD is slightly positive with a 70% stock allocation because of those drips – not nearly enough gain to cover the cash withdrawal however. Reinvestment of dividends is greater than my annual savings were in all but the last few years of my working life. Love that compounding effect.

    1. Kevin, I think the short bond ladders should be “safe” as long as you hold target-date bond funds and hold them to maturity. That said, I think CD’s are a fine alternative, and possibly easier to manage (in reality, any ladder could comprise both CD’s and date specific bond funds).

      Having bucket 1 in an IRA is ok, but it does force you to do a distribution to cover spending needs. For that reason, I prefer to hold bucket 1 in after-tax. You could easily sell some equities in your after-tax account and (on the same day) use the cash in your IRA to buy a similar fund. That puts the cash in your after-tax but maintains your desired equity exposure.

  25. Seems like it would be simplest withdraw bonds if they’re up, or stocks if they’re up. If they are both down, withdraw from both. In all cases, withdraw to get back to your target asset allocation. Any thoughts?

    1. I’d agree with you, with one exception. First sentence is fine, but I’d revise sentence 2 as follows:

      “If, after your bucket 1 has been depleted, both asset classes are still down, withdraw from the one that’s down the least.”

      I think the important thing is to avoid selling a loser and triggering the SORR. To me, that’s a higher priority than doing whatever necessary to maintain a targeted asset allocation, which should be the secondary priority.

  26. Hi Fritz, thanks for the post and I have your book which I use as a good reference from time to time. I have some quotes from Kitces on the glide path and wanted to get your thoughts. Kitces: “From the financial planning perspective, these results may be somewhat surprising. In a world where the conventional wisdom is that retirees should reduce their equity exposure throughout retirement as their time horizon shortens, this research suggests that in reality, the ideal may actually be the exact opposite.

    1. I’ve read Kitces work on the subject, and I do agree. Essentially, the reverse glide path says to increase your buffer (reduce equity) at the start of retirement, then increase it in time. I expect I’ll be following this path, even if I keep 3 years in Bucket 1 forever. Why? Because you would expect, in time, your portfolio will grow more than your ~3-4% withdrawal rate. Since the amount of $ in Buckets 1 & 2 is essentially constant (increasing only by the amount of inflation), the growth would end up in Bucket 3, increasing your equity exposure with time. Add in the fact that after SS kicks in the amount in Buckets 1 & 2 will actually decrease, and the increased equity allocation is almost a certainty.

      That’s how I think about it, for what it’s worth…

  27. Wow, Fritz – you’ve been financially busy this year! Love all the detail – even though we’re not set up exactly the same, it’s helpful to see how you do things.

    Unfortunately, I didn’t take advantage of the lower market prices to do my Roth IRA conversion earlier this year. Since we’ve had several changes financially, I wanted to wait until this month to do our annual conversion so I could see where we’re ending up first. I want to move the biggest amount possible while still paying the least amount of taxes I can on it.

    I did decide though that I’m not going to refill another year’s worth of expenses into my bucket one this year. We’ve been sitting on a floating 5 years of bond funds plus the current years cash… I’ve been thinking that that might be a little much (though not terribly excessive). So in light of that and the fact that the market still hasn’t recovered, I’m going to skip selling any VTI this year and buying another bond fund. I guess time will tell if that’s a smart move! 🙂

    PS Can’t wait to read your post on your consulting experiment (I just know you’re planning one!). Should be interesting!

    1. Jim, you had to rub in your “bond ladder,” didn’t you? (You know I’m envious, right?). Your strategy of not refilling it this year makes perfect since, it’s essentially the same as drawing down the bucket when the market is down to avoid selling a loss. Perfectly sound. Now, about that Roth conversion…. 🙂

      As for the consulting experiment, I hadn’t actually planned to write a post about it, but you may have just motivated me to do just that. Stay tuned…

  28. Fritz/everyone,

    Thanks for all of the various perspectives on your responses.

    Retirement plans are somewhat like opinions, everyone (should have)/has one and they all are somewhat different. Yes, I know that this is a variation of another saying but I’m trying to keep it clean here.

    We are in a different situation in that my wife is 7 years older than me, and has been retired for 5 years on 01/01/23. She will start taking her initial RMD in 2024, and I’m still working for a few more years.

    I’ve got my Excel Retirement model that I built, and also use Personal Capital and New Retirement to validate my Excel model.

    Thanks again to everyone for your thoughts/feedback.

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