A Review of Ray Lucia’s “Buckets of Money Retirement Solution”

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.

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9 thoughts on “A Review of Ray Lucia’s “Buckets of Money Retirement Solution””

  1. I will have to check out the book, but I always take Lucia’s advice with a grain of salt. He, like many commissioned advisors, love annuities a bit too much. I never see a reason for indexed annuities. They are garbage. Fixed annuities serve a role; however, they should be minimized right now due to the extraordinary low rates.

    I would be interested in his reason for unlisted, private REITs. Again, I jump to the commission. These pay much higher commissions than buying a REIT ETF. Also, these private REITs are very illiquid. They may only allow an investor to sell during limited periods like once a quarter. Additionally, they can restrict any sales even during the open period. This happened with many of them in 2008-2009. Since they had few buyers, they would have been forced to liquidate properties to meet the sale requests. So they just refused any sale requests. The only upside is they do pay a bit higher yield because they have less administrative overhead of a publicly traded REIT. But, that comes at a cost.

  2. Also, when you are an advisor who gets paid a commission on sales and the commissions are higher on insurance products, then there’s no wonder why you think annuities are great.

  3. I have learned that it is best to avoid advice from sources that are being paid by frims that produce products they endorse. It’s plain conflict of interests and totally biased.

  4. I’m a bit late to this and just read the book. My friend and I have been debating the public vs. non-traded REITs. My points and issue with Ray’s explanation is that he seems to be mixing apples and oranges. He cites Ibbottson studies then roles right into non-traded REITs. He then talks about the non-traded advantange of not having the same volatility as the public version.

    This seems misleading to me. Ibbottson studies are based only on publicly traded companies/REITS so the conclusion about the superior returns only apply to the public variety.

    The statements that non-traded REITs are less volatile are without merit. You cannot objectively measure the volatility of non-traded REITs because they do not have an observable market (e.g. public markets). Maybe there is some study out there of transactions of interests in non-traded REITs but since it was not cited, I assume it doesn’t exist.

  5. I also read the book, and I too am skeptical on his non-traded REITs. I had one of his people come over to see if the strategy worked for me. I had to ask him to send me a prospectus of the variable annuity since on the first visit, they bring no products. I read it and it was laden with fees. Everywhere you turned there were more fees. Even the mutual fund the use has a 5 % load (I didn’t think anyone charged that anymore) and 2.95% annual expense ratio – ouch.

    I then checked into Vanguard (where I currently have all my assets) and they have a very reasonable variable annuity, and they use their low fee mutual funds and no surrender charge.

    So, Ray no thanks I will stick with Vanguard.

  6. As an insurance guy that also works for annuities here is my honest belief on Annuities. I think they are only good if you want to create a pension-like income. Indexed annuities sound good on paper, until you see a return capped at 2 or 3%… I would never have someone commit their money to something for 10 years to have a capped 3% return. Now, those annuities can have the annuity rider attached that can give you a 10% bonus on contributions, guarantee you 7% annually and then provide you with a guaranteed income for life. That actually makes sense to me. Otherwise, I don’t know why anyone would use annuities.

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