Why retirement bucket strategies need a market-drop stress test.

The bucket idea is visual by nature

A retirement bucket strategy separates near-term spending from longer-term growth. The language is simple: spend from safer buckets, let growth recover, refill when the market is not down. Whether that holds up is easiest to see by watching the buckets move.

The real lesson appears during stress

The Retirement Bucket Simulator places one downturn on the timeline, set by three numbers: how far the market drops, how many years it stays down, and the year it starts. The drop lands on each bucket in proportion to its growth share, and the market then holds flat for the length you set. There is no assumed rebound, because the shape of a recovery would be a forecast.

The question it answers is the one that matters: can the safer buckets cover spending long enough, or does the plan force sales from depressed growth assets? Year by year, the animation shows which.

The rules the simulator follows

Every bucket holds a growth share (by default 15% in Bucket 1, 50% in Bucket 2, and 85% in the reservoir) and earns that share at the growth rate and the rest at the safe rate. During a downturn nothing is refilled: Bucket 1 pays the bills until it is empty, then Bucket 2, then the reservoir. After the downturn, no more than the year’s spending plus one catch-up year is sold from the reservoir each year, front bucket first, so a four-year buffer takes four years to come back. Each rule can be switched off to see what it is worth.

Where the growth rate comes from

The S&P 500 with dividends compounded at about 10% a year from 1928 through 2025, and that figure already includes every crash in the record. Placing a crash on top of 10% would count crashes twice, so the simulator solves for the growth rate r that keeps the whole plan compounding at 10%:

(1 + r)^(N − k) × (1 − drop) = 1.10^N

N is the plan length in years and k the number of years the downturn lasts. With a 30-year plan and a 30% drop held for 3 years, r is 12.65%. What the simulator tests is the timing and shape of the downturn, not its total damage.

The same rules against real history

Retirement Date Roulette runs the same engine against every start year with enough history to cover a whole retirement, 1928 to 1996 for a 30-year one, using each year’s actual S&P 500 total return, Treasury bill rate, and inflation. There the downturn is not placed but observed: a year counts as a drawdown when the total-return index sits below its prior peak. The same plan lasts in some start years and runs out in others, which is sequence risk in its plainest form.

The warning before retirement

The last few years before retirement are a landing zone. If too much near-term spending is sitting in a market-exposed bucket, the plan may look fine in normal years and fragile in a bad sequence.

Both tools make that visible. Shrinking Bucket 1 and Bucket 2 in either one shows where the forced sales land, and in which years.