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The 3-year retirement cash bucket
Three years of withdrawals in cash is the most common bucket size. Enter your spending to size it, and see how three years compared with other sizes in past markets.
3 years of withdrawals from savings, about 8% of your $1.5M. The other $1.38M stays invested for growth.
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What this means
A 3-year bucket at your spending holds about $120,000, 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 3-year bucket paid 66% 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 3 times. 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.
Why three years is popular
Most U.S. bear markets have recovered within about three years. A three-year bucket covers a typical downturn without parking so much in cash that long-run growth suffers. Depending on how much Social Security covers, it’s often 5% to 15% of savings.
Where three years falls short
Some recoveries took much longer. After 1929, 1973 and 2000, a balanced growth portfolio took more than three years to get back near its old high. In those stretches a three-year bucket runs dry and you sell from growth anyway, or temporarily spend less. Pairing a three-year bucket with guardrails covers that gap.
Assumptions
- The bucket holds the next 3 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 is a 3-year cash bucket?
Three times your yearly withdrawals from savings. With $70,000 of spending and $30,000 from Social Security, that’s 3 × $40,000 = $120,000.
Is three years of cash too much?
For most retirees it’s roughly 5% to 15% of savings, a moderate cost in growth for protection in typical downturns. The calculator above shows your exact share.
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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.