Stay Safe No Matter What the Market Does: The Three-Move Retirement Defense

TL;DR The three moves that neutralize sequence risk are: (1) the glide path — gradually cut equity exposure over the five years before retirement; (2) the income floor — keep 2–3 years of withdrawals in cash and short-term Treasuries; and (3) bucket sequencing — let the market decide which bucket you draw from. All three run on rules, not emotions.

Retirement that isn't left to luck

If the first five years of retirement dictate the next 25, then the whole job is building a structure that won't break during those five years.

The defense I use in coaching comes down to three moves. None of them are complicated. The problem is that most retirees don't do a single one properly, which is how people end up betting their lives on market luck. Let's take them one at a time.

1. The glide path — a five-year transition

The core of move one is simple: don't change your allocation suddenly on retirement day.

Most retirees make one of two mistakes. The first is staying aggressive too long — 100% stocks all the way to 65, then needing to sell on retirement day to fund withdrawals. If the market happens to be down that day, you lock in the loss immediately. The second is cliff-edge de-risking — panicking at 63 and shifting 60% of the portfolio into bonds in a single month. Do that and you abandon the growth you need to outlast 30 years of inflation. You cut sequence risk by handing yourself longevity risk instead.

Both are wrong, because allocation is a curve, not a switch.

The glide path means descending smoothly, like a plane on approach. Starting five years before retirement, you cut equity exposure mechanically over 60 months — not all at once. Say you want to land at 60% stocks / 40% bonds and you're at 80% stocks five years out. You drop equity by four percentage points a year: year one 76/24, year two 72/28, then 68/32, 64/36, and by year five you're at 60/40.

That said, I don't think everyone belongs at 60/40 — honestly I find it a bit conservative. I've seen portfolios do very well at 70–80% stocks with 20% in short-term Treasuries and cash equivalents. It comes down to your risk tolerance, your risk capacity, and what you and your family actually want.

2. The income floor — cash parked outside stocks

Move two is keeping at least two to three years of withdrawals outside the stock market.

I've hammered this on my channel more times than I can count. It's the one thing that would have saved the 1966 retiree. The moment you retire, you set aside a separate pool equal to two or three years of expected withdrawals. Not stocks, not long-duration bonds — cash, money market funds, and short-duration Treasuries like T-bills. Things that don't lose value when the market gets crushed.

That pool is your income floor. It buys you the right to ride out a bad sequence without selling stocks at a loss.

Why two to three years specifically? The data answers it. The average bear market takes about 13 months from peak to trough. Recovery to the prior high typically takes another year or two. So roughly two to three years from peak to full recovery. With that much sitting in stable assets, you can fund your entire lifestyle from the floor while equities recover — and never liquidate stocks at depressed prices.

Refilling it is just as mechanical. After any year where the S&P 500 finishes positive and your equity portfolio is at or above its prior-year starting balance, you sell enough stock to top the floor back to target. Sell into strength, buy stability — the exact reverse of what panicked retirees do.

3. Bucket sequencing — which bucket you drain

Move three is letting the market decide which bucket you withdraw from.

Most retirees withdraw the same way every year — from whatever account is convenient, or the same percentage from every position to stay balanced. That's the mistake. Instead, split the portfolio into three buckets ranked by stability.

• Bucket 1 (income floor): cash and short-duration bonds — the pool you just built.
• Bucket 2 (income producers): intermediate bonds work, but what I prefer for clients is dividend growers like SCHD or VYM, or a Treasury ladder. Assets that throw off cash without selling principal.
• Bucket 3 (growth): broad index funds like VOO (S&P 500), VTI (total US market), or QQQM (Nasdaq 100). More volatile, but the engine of long-term survival.

The rule: in a good year (S&P 500 positive, equity bucket above its starting balance), draw from bucket 3 — sell stocks high to fund the withdrawal and use the gains to refill bucket 1 too. In a neutral year (market flat or slightly down), draw from bucket 2 — dividends and bond income cover the withdrawal naturally, so you don't sell any equities. In a bad year (S&P 500 significantly down), draw entirely from bucket 1 — don't touch buckets 2 or 3, and let the floor do exactly what it was built for.

Running it on the 1966 retiree again

Same $500,000, same 5% withdrawal. But this time all three moves are in play.

Move one: he glided from 100% stocks to 60/40 over the five years before retirement, so he doesn't enter 1966 at peak equity exposure — he enters with a buffer already partly built. Move two: he sets aside a three-year, $75,000 income floor in cash and short bonds. Move three: through the bleeding years of 1966–1981 he doesn't sell from the equity bucket — he drains the floor for the first three years or so and refills only in the up years (1968, 1972, 1975). That lets his equity bucket participate in the 1982 recovery with capital still in it.

Thirty years later, this version of the 1966 retiree ends with somewhere between $2 and $4 million. Same picks, same fees, same withdrawal rate. The only difference is the three moves. Zero versus two-to-four million — that gap is the whole reason this matters.

The point is that control comes back to you. As long as you follow the rules, you can succeed no matter what the market does.