Bucket Strategies – Challenging Previous Research

Adoptees of bucket strategies were rewarded over the past two months, as their cash reserves have buffered them psychologically from the market decline. Such strategies avoid taking withdrawals from stocks when the market is down, as it is now. But do bucket strategies provide a financial benefit – as some claim – or are any benefits purely behavioral?

Prominent thought leaders in retirement planning advocate for bucket strategies, but there are studies that demonstrate such strategies perform poorly. However, my research shows that those studies rely too heavily on a narrow set of historical data, and should be viewed skeptically. I’ll sort out the arguments and provide results from my own analysis.


The first bucket strategy was developed by financial planning pioneer Harold Evensky in 1985. This was a two-bucket approach with a cash bucket holding five years of retirement spending, and a longer-term investment bucket consisting mostly of stocks. When the stock market performed poorly, withdrawals were taken from the cash account to avoid selling stocks in a down market, and when the stock market did well withdrawals were taken from the investment bucket, and investments from this bucket were also sold to replenish cash.

The most prominent advocate for bucket strategies is Christine Benz, director of personal finance at Morningstar. The particular strategy she advocates is a three-bucket strategy – two years of retirement withdrawals in cash, an intermediate bucket of five or more years of spending held mostly in bonds, and a longer-term bucket held mostly in stocks. Again the strategy is to use cash when stocks are down and utilize the longer buckets they have performed well. This approach keeps an allocation balance between the two longer buckets.

Neither Evensky nor Benz has claimed that a bucket strategy provides superior financial performance (assuming one could agree on a definition of “superior”). They tout the primary benefits as providing peace of mind for clients and making it easier for clients to stay-the-course when investment markets are in turmoil.

Estrada study

Professor Javier Estrada of the Spanish IESE Business School has published a comprehensive 2018 study that compared three different bucket strategies to static strategies that maintain a constant asset allocation. He assumed retirement withdrawals for 30-year periods based on the classic 4% rule (level real withdrawals) and measured how the bucket and static strategies performed in terms of sustainability – i.e., whether and when the strategies ran out of money. He used historical investment performance data from 1900 to 2014 across 21 countries segmented into rolling 30-year retirement periods. His methodology and conclusions were described in detail in this 2019 Advisor Perspectives article by Larry Swedroe (see also the extensive APViewpoint conversation on his article).