The Bucket Approach for Retirement: A Suboptimal Behavioral Trick?

18 Pages Posted: 8 Dec 2018

Date Written: October 29, 2018

Abstract

A bucket approach, which broadly consists of parking a few years of annual withdrawals safely in cash and investing the rest of the portfolio more aggressively, is a popular strategy often recommended by financial planners and typically embraced by retirees. Although this strategy is not devoid of merit, the comprehensive evidence discussed here, from 21 countries over a 115-year period, questions its effectiveness. In fact, simple static strategies, which by definition involve periodic rebalancing, clearly outperform bucket strategies, and they do so based not just on one but on four different ways of assessing performance.

Keywords: Retirement strategies; bucket approach; static asset allocations; rebalancing

JEL Classification: G11

Suggested Citation

Estrada, Javier, The Bucket Approach for Retirement: A Suboptimal Behavioral Trick? (October 29, 2018). Available at SSRN: https://ssrn.com/abstract=3274499 or http://dx.doi.org/10.2139/ssrn.3274499

Javier Estrada (Contact Author)

IESE Business School ( email )

IESE Business School
Av. Pearson 21
Barcelona, 08034
Spain
+34 93 253 4200 (Phone)
+34 93 253 4343 (Fax)

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