Buckets, Glide Paths, and the Time Horizon Problem

Two families of technique dominate how planners map money to time. Bucketing splits the portfolio by when it will be spent: cash for the next two years, defensive assets for years three to seven, growth assets beyond. Glide paths change the mix continuously, de-risking as a target date approaches. Both are answers to the same question: how do you hold volatile assets against dated liabilities.

Buckets work psychologically because they quarantine the scary asset. A drawdown in the growth bucket does not threaten next year’s spending, and knowing that is what stops the panicked sale. Their failure mode is refill discipline: the rules for moving money between buckets are where the strategy actually lives, and most implementations leave them vague.

Glide paths work mechanically because they automate de-risking that humans reliably postpone. Their failure mode is indifference to valuation and sequence: a path that de-risks on schedule will happily sell growth assets into a crash if the calendar says so, and the years immediately around the target date carry concentrated sequence-of-returns risk that a smooth line on a chart quietly hides.

The refill rules are the actual strategy

A bucket system’s real design decision is hidden in the transfer rules between buckets, not the initial split. Calendar-based refill tops up the cash bucket every quarter regardless of market conditions, which is simple and disciplined but happily sells growth assets into a crash if the calendar says quarter-end. Threshold-based refill tops up only after growth assets rise past a set level, which avoids selling low but can leave the cash bucket dangerously thin during an extended downturn if no threshold is ever crossed. Opportunistic refill waits for genuine strength and tops up in larger, less frequent moves, trading simplicity for better average entry and exit points. None of the three is correct in isolation. The choice should match the same tolerance and capacity assessment that shaped the original allocation.

Same average return, different outcome

Sequence risk is easiest to see with numbers. Two portfolios both average 6 percent annual return over ten years. Portfolio A returns minus 15 percent in year one, then recovers steadily. Portfolio B returns plus 15 percent in year one, then the same recovery path in reverse. If no withdrawals are being made, both portfolios end at an identical value, because order does not matter to pure compounding. Add a fixed annual withdrawal to fund retirement spending and the identical average return produces meaningfully different outcomes: Portfolio A is drawing down a smaller base during its worst years, permanently impairing the capital available to compound through the recovery, while Portfolio B draws from a larger base early and never faces that impairment. This is why the years immediately before and after a target date carry disproportionate risk in any glide path, and why buckets exist at all: to remove the need to sell the wrong asset in the wrong year.

Neither technique is the answer. Each is a different compromise between behaviour and mathematics, which is the honest description of most portfolio construction.

Refill discipline, tax, and other resources

The refill discipline interacts with tax in ways worth planning for explicitly, particularly outside superannuation. A calendar-based refill that sells growth assets every year regardless of price also crystallises a capital gain every year regardless of price, which threshold-based refill avoids simply by transacting less often. Neither policy is free of the choice, it is just a different place to make the trade-off between behavioural discipline and tax efficiency.

Glide paths built purely on age also assume every investor’s other resources shrink to zero at retirement, which is rarely true. A household with a defined-benefit pension, a rental property, or a phased retirement plan has a different true time horizon than the glide path’s calendar suggests, and a mechanical age-based path applied without adjustment will often de-risk a portfolio well past the point the household’s actual circumstances required it.