Building Your Retirement Cash Runway
Sequence of returns risk is the academic name for a very human problem: retiring into a bad market. When you're still working, market downturns are buying opportunities. When you're withdrawing money, a 30% drop means you're selling shares at the bottom to fund your groceries.
The Cash Runway Solution
Hold a buffer - 2-3 years of planned annual withdrawals in cash or near-cash - that you draw from when markets are down. This allows your equity portfolio to recover without being forced to sell at depressed prices.
The bottom line
A 22% drop in year one can cut 5-7 years from a portfolio's survival window. The runway prevents that.
The Three Buckets
- Bucket 1 (1-2 years): Cash and near-cash in a HYSA or money market account, earning roughly 4 to 4.5% APY.
- Bucket 2 (years 3-7): Conservative income - short and intermediate bonds, Treasuries, stable value funds. Refills Bucket 1 as needed.
- Bucket 3 (everything else): Growth - diversified equity exposure for long-term compounding.
Building the Runway Before You Retire
The time to build the cash runway isn't the day you retire. It's the 2-3 years before. Shift a portion of your portfolio into Buckets 1 and 2 during the final working years so you arrive at retirement already insulated.
What would you do?
Sam retires at 67 with $1.1M, planning to withdraw $44,000/year (4% of portfolio). In year one, the market drops 22%.
Your Move
Calculate your planned annual retirement withdrawal (3.5-4% of your total portfolio). Multiply by 2 for a 2-year cash runway target. Do you have that amount accessible in cash or short-term bonds?
Educational content only. Not financial, tax, or legal advice. Consult a qualified professional before making decisions based on your specific circumstances.
Last reviewed: April 2026