Why DIY Retirees Prefer the Bucket Approach

One reason the bucket approach has become increasingly popular among DIY retirees is that it handles life's transitions naturally. Because the safety bucket is defined in terms of future spending rather than a fixed percentage of the portfolio, it adjusts automatically whenever a retiree's expected expenses change.

For example, an 80-year-old retiree who maintains seven years of future expenses in the safety bucket will usually see that bucket become smaller as discretionary spending declines with age. If the retiree later moves into a long-term care facility, the higher expected expenses are automatically reflected in a larger safety bucket. Likewise, if a spouse passes away and household expenses decrease, the safety bucket naturally shrinks to match the new level of spending.

A retiree following a fixed asset allocation has no comparable framework for responding to these events. Deciding whether to change from a 60/40 allocation to 50/50 or 70/30 becomes largely subjective. This flexibility is one reason the bucket approach has gained such strong acceptance among DIY retirees.