I received a copy of Ray Lucia’s The Buckets of Money Retirement Solution: The Ultimate Guide to Income for Life*, a couple of weeks ago. I avoided the first “Buckets” book because the title got on my nerves. As much as the title bugs me, I do think the strategy is solid. When I first became familiar with the “buckets” strategy it reminded me of Paul Grangaard’s Grangaard Strategy: Invest Right During Retirement*, which I reviewed and discussed several years ago.
Lucia opens the book with a discussion of the credit crisis and how it has affected people’s retirement accounts. It seems like every book these days discusses the credit crisis. Lucia approached it more from the standpoint of what can be done from this point forward rather than just rehash the turmoil. The second chapter offers up four steps that people can do in preparing for the future:
1. Rebuild savings.
2. Rethink retirement years.
3. Retool retirement savings plans.
4. Reinvent strategy.
Pointers and ideas (like use less gas) are offered for each step. This particular part of the book seemed unnecessary to me.
The real meat of the book begins in chapter three, which begins the discussion of the “buckets strategy.”
What is the Buckets of Money strategy?
Basically, the strategy sets up three “buckets” representing three different goals and time horizons. Like this:
Bucket 1. Short-term income. This bucket is used to meet day-to-day expenses.
Bucket 2. Intermediate-term income. This bucket is used to hold assets that will be used for income a few years down the road.
Bucket 3. Growth. This bucket is used to grow assets for future income.
He then goes into details about what investments to put into each bucket. Bucket 1 is reserved for short-term investments and lifetime income (annuities). This bucket has a 1-5 year time horizon.
Bucket 2 is reserved for riskier income-generating assets. Fixed annuities, corporate bonds, international bonds, and a whole host of various annuities. Yes, Lucia even suggests looking into fixed indexed annuities. This part bugged me a little. It wouldn’t bug me so much but nearly all the positive vibes for some of these annuities comes from those who sell them. To Lucia’s credit, he did address expenses and the importance of keeping them under control.
Bucket 3 is where the growth assets are kept. This is where stocks, REITs, and other riskier assets are held for the long-term. He dedicates an entire chapter to REITs and nontraded REITs. Lucia is a fan of nontraded REITs, which are purchased through a broker and do incur sales loads.
After discussing the Buckets, he moves on to give a hypothetical example of positioning a couple for retirement. This chapter was interesting but a little on the vague side. For instance, when is the right time to move assets from Bucket 3 to Bucket 2? I never really found a solid answer to that question.
The rest of the book has chapters on annuities, REITs (mentioned above), personally owned real estate, taxes, and withdrawal strategies.
Overall I liked the book. There were a few things I didn’t like. Some of his charts were out of date (one ended in 1997, another ended in 2004). In his discussion of annuities, he cited a study co-sponsored by Wharton and New York Life that was very complimentary toward annuities. This is not surprising since New York Life co-sponsored the study. What would one expect it to say? Finally, staying on the topic of annuities, he talked about how confusing some of the products were. I’m of the mind that if a product is that confusing, it should be avoided like the plague. But, that’s just me. I bring my own biases to the table.