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The Bucket Strategy Rebalances Too, Just Not Every Year

2026-10-17

We often hear that fixed asset allocation requires rebalancing, while the bucket approach does not.

That is only half right.

A well-designed bucket approach requires rebalancing too. But instead of rebalancing to a fixed percentage allocation, it rebalances to a target number of years of expenses.

Each year, the Growth Bucket can refill the Safety Bucket to its target. But unlike fixed-allocation rebalancing, bucket refilling may not happen every year.

If equities are down 50%, you may not want to sell more equities just to refill the Safety Bucket. Instead, you may wait for the market to recover and fund expenses from the Safety Bucket in the meantime.

That raises an important question: how do you know when to refill?

There are several ways to decide.

1. The 3-Year Growth Bucket Return

You can set a threshold based on the Growth Bucket's 3-year return. For example, with a threshold of -5%, you refill when the 3-year return is above -5% and wait when it is below.

Three years helps prevent a single year's market performance from automatically triggering a refill.

If the market fell 20% last year but the 3-year compounded return is still +3%, you can refill. Conversely, if the market returned +5% last year but the 3-year return is -10%, you keep waiting.

2. Funded Status

Another approach uses funded status—the ratio of current portfolio value to the present value of future expenses. You might refill whenever funded status is above 1.0.

The problem is that an underfunded retiree's funded status may never recover above the threshold. Refilling could therefore be delayed even when the market performs relatively well.

3. A High-Water Mark

A third approach compares the current portfolio value with the initial portfolio value adjusted for inflation. Until the current portfolio reaches that level, you do not refill.

This has a similar weakness. Both funded status and high-water marks can be too absolutist, forcing retirees to wait for a particular portfolio level in the hope that the market will do much better.

That may never happen. Meanwhile, they could miss opportunities to refill after meaningful market recoveries.

Of these approaches, the 3-year return rule appears to offer the most reasonable middle path.

It isn't perfect. The market could have underperformed for years, yet the latest 3-year return might recover enough to trigger a refill.

Still, the rule is less absolutist. It focuses on market returns rather than funded status, which can remain low for reasons beyond recent market performance. And it does not require the portfolio to reach a distant high-water mark.

It is a practical way to identify opportunities to refill the Safety Bucket without setting unreasonable benchmarks for the portfolio to first reach.

CherishBuckets's Monte Carlo feature is based on the 3-year return rule and lets you test different benchmarks and see how they affect the probability of success.

It can be a useful bucket selection tool for you or your clients.

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