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If you’re within five years of retiring, here’s what nobody tells you: one of the biggest risks is running out of cash on hand the moment the market decides to have a bad year. That’s a big part of the difference between a retirement that feels steady and one where you’re refreshing your account balance every morning like it’s a scorecard.
The Job Changes
For 30 years, your job was pretty simple: put money into your account, let it grow, ignore the noise and the fluctuations. In the five years before you retire, that job changes completely. You’re about to start pulling money out on a schedule you don’t control, from a portfolio whose value you also don’t control.
Sell the wrong investment in the wrong year, and you don’t just take a loss. You lock that in permanently, even after the market recovers. There’s a name for that: sequence of returns risk. It’s one of the biggest reasons the five years before retirement need a different playbook than the 30 years before that.
Meet Ellen and Doug
Ellen and Doug are 61 and 63, both still working, four years out from a retirement they’ve been picturing since their 30s. They’re good savers who did everything the textbook told them to do. They’ve got about half a million dollars in a 401(k) each, a paid-off home, no debt, and no idea what happens to that number if the market drops the year they walk out the door.
Here’s the bad version of that story: they retire in a year where the market drops close to 40%, start pulling income from the same accounts that just took a hit, and every withdrawal locks in a loss that a recovery a year later can’t undo.
That’s a structural problem, and structural problems are the ones you can fix in advance.
The Fix: Safety, Income, Great Life
Here’s how we fixed it for Ellen and Doug. We used a framework called Safety, Income, Great Life. Every dollar in one of these buckets has got one job, and only one job.
Ellen and Doug need $9,000 a month to live the retirement they actually want. Between Social Security and Doug’s small pension, they cover about $4,000 of that, leaving a $5,000 monthly gap: $60,000 a year that their portfolio has to produce on schedule, regardless of what the market is doing at that particular time.
- Safety bucket: Two to three years of that gap, call it $120,000 to $180,000, sitting in cash, money market, and short-term bonds. Not invested, not trying to grow. Its only job is to exist, fully liquid, so that if the market drops 20% the year they retire, Ellen and Doug can avoid being forced to sell their growth investments at the bottom just to cover the electric bill.
- Income bucket: Produces the rest of the $60,000 gap through structured income-generating investments, so the paycheck arrives whether the market’s up or down that year.
- Great Life bucket: Whatever’s left, positioned for growth. With the first two buckets doing their job, that money doesn’t need to be touched for years, which means it’s got years to recover from whatever the market throws at it.
These figures are only illustrative. They’re not a projection or a guarantee for any individual. Every situation looks different depending on your income sources, expenses, and goals.
The Unglamorous Work
The five years before you retire are also when you do the unglamorous work that gets skipped when everything else feels urgent instead of important. Go through your portfolio, find anything that might be illiquid, locked up for years at a time, and ask honestly whether that still makes sense this close to the finish line.
Look hard at what you’re paying in fees. Two percent a year on money you’re about to depend on for income is a very different analysis than 2% on money you’re not going to touch for two or more decades.
And write down your guardrails now: specific, agreed-upon rules for exactly how much you’d adjust your spending if the market drops the year after you retire, decided in a calm moment rather than invented in a panic while it’s actually happening.
The goal is simple: reduce how much power the market has over whether you can comfortably pay your bills, regardless of where it goes next.
Ellen put it simply after we walked through their plan: “I didn’t need the market to cooperate. I needed a plan that did not need the market to cooperate.” That’s the shift, from growth-only thinking to a structure built for exactly the window you’re standing in right now.
If you’d like to see this framework applied to your own numbers, that’s exactly what we walk through in our virtual workshop. It’s free, it runs about an hour, and you’ll walk through an actual structure you can apply, not just the theory behind it.