Bucket Strategy Calculator

What the split does and does not change

A 500,000 portfolio against 40,000 of annual spending has 12.5 years of runway in total, and that figure does not change however the money is split. Splitting it 10% cash, 30% bonds and 60% growth puts 50,000 in cash, 150,000 in bonds and 300,000 in growth, which is 1.25 years, 3.75 years and 7.50 years of spending respectively.

The number the strategy is actually about

The number a bucket strategy is actually about is the one in between: cash and bonds together hold 200,000, which is five years of spending before anything has to be sold from the growth bucket. A 20/40 split makes that 7.5 years. With both buckets at zero it is nothing at all, while the headline runway stays at 12.5 years throughout. The split does not create money; it decides which money gets spent first.

That five-year figure is the point of the structure. Selling growth assets to fund spending in a year they have fallen locks in the fall, and the buckets exist so that spending can come from cash instead until the growth bucket recovers. Whether five years is long enough is a judgement the calculator does not make, and it depends on how long a downturn runs, which nobody knows in advance.

Why the buffer is not a schedule

The runway figures assume spending stays flat and nothing is refilled, so they describe a buffer at one moment rather than a schedule. In practice the cash bucket is topped up from bonds and the bond bucket from growth, usually in years when growth has risen, and that refilling is the whole discipline of the approach. A calculator that shows a static snapshot cannot show whether the refilling happens.

What the buckets are worth in real terms

The buckets are also held at nominal value here, so a long buffer covers fewer real years than the number suggests: the amounts do not move, and prices do. The BIS maintains consumer price series for more than 60 countries, some running back to the mid-19th century, which is where a sense of how far prices drift comes from. Five years of cover at today's prices is less than five years of cover at the prices of a decade hence.

Underneath the structure is a bet that the three pots behave differently, and long-run returns are measured asset by asset rather than as one number. A dataset covering 16 advanced economies from 1870 to 2015 assembles total returns for equity, housing, bonds and bills, which is the sort of evidence the split rests on. Its categories overlap this calculator's without matching them, and that gap is worth holding in mind: the pots here are labels for time horizons, not for specific holdings.

What the calculator leaves out

• Investment returns on any bucket, so the growth bucket never grows here
• Inflation, which erodes the cash and bond buckets in real terms
• Refilling between buckets, which is the mechanism the strategy exists for
• Tax on withdrawals, and where each bucket is held
• Fees, which come off every bucket
• Any change in spending, whether planned or forced

For educational illustration only

This calculator applies two percentages to a total and divides each piece by annual spending. It assumes nothing grows, nothing is refilled, and spending never changes. The output shows the shape of a split at a single moment, not how a drawdown would actually run.