Comparison
3-year vs 5-year retirement bucket
More cash means fewer forced sales in downturns, but less money growing. Here’s how three and five years of cash compared on the same plan through every market since 1928.
Historical success with $85,000 a year from $2,000,000: the 3-year bucket lasted in 65 of 69 starts; the 5-year bucket lasted in 65 of 69 starts.
| 3-year bucket | 5-year bucket | |
|---|---|---|
| Lasted 30 years (history) | 94% | 94% |
| Lasted (2,000 simulated markets) | 90% | 90% |
| Lowest yearly spending, starts that lasted | $85,000 | $85,000 |
| Typical total spending, whole retirement | $2.55M | $2.55M |
| Typical money left at the end | $4.64M | $3.78M |
| Years sold investments right after a drop | 3.6 on average | 2.0 on average |
Selling right after a stock decline locks in losses. The last row counts those years in a typical retirement.
- 3-year bucket
- 5-year bucket
What this means
With $85,000 a year from $2,000,000 (4.3%), the 3-year bucket lasted 30 years in 94% of historical starts and the 5-year bucket in 94%.
The 5-year bucket had to sell investments right after a down year least often: about twice in a typical retirement, against about 4 times for the 3-year bucket.
No plan wins on every measure. Plans that adjust spending protect your savings but ask you to accept some lean years; fixed plans keep spending steady but need a lower starting rate to hold up in the worst markets. The right choice depends on how much flexibility your budget really has.
What the extra two years buy
A five-year bucket can wait out longer recoveries without selling stocks: the 1970s, the early 2000s and the Depression all took more than three years to come back. A three-year bucket covers most ordinary bear markets with less cash on the sidelines.
The comparison holds everything else equal: same savings, spending and growth mix. Only the bucket length changes.
How to choose
- Lean toward 5 years if you’re retiring before Social Security, your spending is high relative to savings, or a downturn would tempt you to sell.
- Lean toward 3 years if Social Security or a pension covers most of your spending, or you’re comfortable trimming spending in a downturn.
- Or combine 3 years with guardrails, which covers the long slumps by spending a little less instead of holding more cash.
Assumptions
- Fixed and guardrail plans hold 60% stocks and 40% 10-year Treasuries. Bucket plans keep the stated years of withdrawals in Treasuries and invest the rest 80% in stocks.
- Guardrails: cut spending 10% when the withdrawal rate rises 20% above its start, raise 10% when it falls 20% below, floor at 80% of starting spending.
- History tests every 30-year stretch since 1928. The simulated figure stitches together random 5-year blocks of real history (2,000 runs). No taxes or fees.
New to a term? See the retirement income glossary.
Common questions
Is a 5-year cash bucket too conservative?
It holds more in lower-returning assets, but historically it avoided forced selling in more retirements. Whether that’s worth it depends on your spending and temperament.
Does a bigger bucket mean a higher success rate?
Not always. Bigger buckets reduce selling after down years but can lower long-run growth. Compare both rows in the table above.
Related tools
How we calculate this
Each plan runs through the same historical stretches and the same simulated markets, so the only difference is the withdrawal rules. Bucket plans withdraw from cash and refill it only when investments are within 5% of their previous high.
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.