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
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Safe Withdrawal Rate: 3.3% ($50k/yr withdrawn from portfolio in Year 1)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 divide 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…
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:
