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The 5-year retirement cash bucket
A five-year bucket is built to outlast longer downturns. Size yours and see how often it kept retirees from selling stocks after a bad year.
5 years of withdrawals from savings, about 13% of your $2M. The other $1.75M stays invested for growth.
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What this means
A 5-year bucket at your spending holds about $250,000, counting only what Social Security doesn’t cover. Withdrawals come from the bucket, and it’s refilled from investments only after they recover to near their previous high, so a market drop doesn’t force you to sell low.
In past 30-year retirements, a 5-year bucket paid 85% of the withdrawals that followed a down year entirely from cash. Without a bucket, a typical retiree sold investments right after a down year about 8 times; with this bucket, about once. A 7-year bucket raises the cash share to 92%, but each extra year of cash also earns less than stocks over long periods.
No bucket covers every downturn: the longest slumps, like the 1930s and 1970s, outlasted even large buckets. The right size is a trade-off between peace of mind and growth. Many planners use 2 to 5 years, and pairing a bucket with guardrails covers the long slumps by spending a little less instead of holding more cash.
Who a five-year bucket suits
Five years outlasts most U.S. stock recoveries since the Depression, though not the very longest slumps. It suits retirees who would find it hard to watch stocks fall without selling, and those retiring several years before Social Security, when withdrawals are at their highest.
The cost of holding more cash
Five years of withdrawals is often 10% to 25% of savings, depending on spending and Social Security. Over a long retirement, money in Treasuries usually grows more slowly than stocks. If Social Security starts within the five years, the bucket needs less, because later years only cover the gap. The calculator accounts for that automatically.
Building it gradually
You don’t have to fill five years at once. Moving money over two or three years can spread out the income tax on pre-tax withdrawals. Income Horizon’s Live mode plans this build year by year for people who are already retired.
Assumptions
- The bucket holds the next 5 years of withdrawals: spending minus Social Security.
- Bucket money is half Treasury bills and half 10-year Treasuries. The growth bucket is 80% S&P 500 and 20% Treasuries.
- The bucket is refilled only when investments are within 5% of their previous high. Results use every 30-year stretch since 1928.
New to a term? See the retirement income glossary.
Common questions
How much cash should I have for 5 years of retirement?
Five times your yearly withdrawals from savings, less any Social Security that starts within those five years.
Is a 5-year bucket better than a 3-year bucket?
Historically it avoided forced selling in more retirements, at the cost of more money earning lower returns. See our 3-year vs 5-year comparison for side-by-side results.
Related tools
How we calculate this
We size the bucket from your next years of withdrawals, then run the two-bucket strategy through each 30-year stretch of history: withdraw from cash, refill from the growth bucket only near its high, and record every year after a stock decline in which a withdrawal had to come from investments.
Data: S&P 500 total returns, 10-year Treasury and 3-month Treasury bill returns as compiled by Aswath Damodaran (NYU Stern), and CPI-U inflation from the U.S. Bureau of Labor Statistics, 1928–2025 (2025 preliminary). Read the full methodology and limitations.