How the 2-Bucket Calculator Works

The Safety Bucket holds safer, lower-risk assets, preferably shorter-maturity debt. Each year, it pays all retirement expenses.

The Growth Bucket replenishes the Safety Bucket annually, with the goal of maintaining a preset number of years of expenses in the Safety Bucket. For example, if the target is five years of expenses, the Safety Bucket is replenished to cover the next five years of expenses.

The calculator allows you to introduce a glidepath that changes the Safety Bucket's target level over time.

You can specify:

This allows you to model a Safety Bucket that evolves throughout retirement rather than maintaining a constant target.

You can choose the percentage of essential and discretionary expenses used to calculate the Safety Bucket's target. The permitted range is 100%–200%.

This percentage determines the Safety Bucket's target size, not the expenses it actually pays. The Safety Bucket continues to pay the full actual expenses each year.

For example, choosing 150% coverage allows the Safety Bucket to hold more than the amount required for its preset years of expenses. This provides an additional reserve against unexpected spending shocks.

Instead of using the calculator's standard expense inputs, you can upload your own yearly expenses.

This is useful when expenses do not follow the standard growth assumptions or when you need to include irregular expenses and inflows. Inflows can be entered as negative expenses.

The calculator offers two options for determining how the Safety Bucket's target is handled toward the end of the plan.

The second option is useful for retirees who want to maintain their Safety Bucket target even in the final year of the plan, particularly because the actual end of retirement is uncertain.

You can specify the minimum legacy required for a simulation to be considered successful. A simulation counts as a success if the portfolio never runs out during the plan and ends with at least this legacy.

You can specify an average annual return and a standard deviation for the Growth Bucket's returns.

The average return sets the expected return assumption, while the standard deviation determines the volatility of returns across simulated years.

You can choose to randomize the Safety Bucket's annual returns, allowing its return to vary from year to year rather than remain fixed.

You can set a threshold for refills from the Growth Bucket based on its compounded return over the previous three years. If that 3-year return falls below the chosen threshold, the Growth Bucket does not refill the Safety Bucket that year. Such a year is called a skip year.

If fewer than three years have passed since the start of the plan, the refill decision is based on the available Growth Bucket returns since the plan began.

During a skip year, if the Safety Bucket does not have enough money to cover that year's expenses, the Growth Bucket pays the shortfall.

Monte Carlo analysis always maintains the Safety Bucket at its target levels through the end of the plan, corresponding to Option 2 above. This applies regardless of which option was selected on the main calculator.