5 Strategies to Protect Your Retirement
How to Build a Retirement Income Strategy That Holds Up When Markets Drop
By Greg McCall, CFP® | Eagle Financial Planning | Eagle, Idaho
Most people spend decades doing everything right. They max out their 401(k), stay invested through the rough patches, and eventually hit retirement with a real number in their account. The problem usually shows up in year one or two, when the market drops 30% and every dollar pulled out to cover living expenses is a dollar sold at the worst possible time.
This is called sequence of returns risk. Your long-term average return might look perfectly fine on paper, while the actual experience of your retirement looked nothing like that average. Two people with identical 20-year average returns can end up in dramatically different financial positions depending entirely on whether the bad years came early or late. The person who got unlucky with timing can finish with a fraction of what the other person ends up with, even though the averages were the same.
I work with pre-retirees and retirees as a fee-only, fiduciary CFP® and this is one of the most underappreciated planning issues I see. Not because people haven’t saved well. Most of my clients have. The gap is almost always between their savings strategy and their retirement income strategy. Building a portfolio and building an income plan are two different skills, and people tend to spend far more time on the first one.
The five strategies below are what I actually help clients put in place. None of them require predicting the market. All of them require planning ahead.
Build a Cash Reserve Before You Retire
If the market drops 30% in your first year of retirement and you have nothing stable set aside, you’re forced to sell equities at a loss just to cover your mortgage, groceries, and utilities. A cash reserve bucket is designed to make that scenario impossible.
The setup is straightforward. Before you retire, you set aside two to five years of your income need in something stable and accessible. Money market funds work well here. Short-term CDs are another option. The point isn’t to earn a high return on this money. The point is that it’s there when you need it, regardless of what equities are doing.
Research shows that even a single year of cash reserves can improve portfolio survival rates by around 6%. Two to five years gives your long-term investments room to ride out a prolonged downturn without being forced to liquidate at depressed prices. The exact right amount depends on your situation, how much guaranteed income you have coming in from Social Security or a pension, what your actual monthly expenses look like in retirement, and honestly, how you’d feel emotionally watching your investment portfolio drop 25% if you knew your cash bucket had you covered for three years.
In my experience working with clients, the cash bucket changes the emotional experience of market downturns more than almost anything else. Retirees who have it don’t panic-sell. They know their bills are covered and they wait. That discipline, by itself, is worth a lot.
Create a Real Distribution Plan Around Your Buckets
A cash reserve only works if there’s a clear plan for when to draw from it and when to draw from investments instead. Without that plan, even well-funded retirees end up improvising, which usually means decisions driven by anxiety during downturns and overconfidence during bull markets.
The framework I use with clients is straightforward. When markets are performing well, you draw from your equity holdings and use any excess gains to refill the cash bucket. When markets are down, you stop drawing from equities and live off the cash bucket until conditions stabilize. You’re giving your investments a break during the periods they need one most.
This sounds simple, and conceptually it is. In practice, it requires a written plan with clear trigger points. What specifically counts as “markets are down” in your plan? How long do you let a downturn run before reassessing? What’s the order of operations for refilling the cash bucket when things recover? Working through these details in advance, before you’re watching your portfolio drop and feeling the urge to act, is what separates a plan that holds up from one that doesn’t.
From a fiduciary perspective, this kind of distribution planning is one of the most valuable things a planner can help a client build. It replaces reactive decisions with a documented process.
Switch From a Fixed Withdrawal Rate to a Dynamic One
The 4% rule has been a default for decades. Withdraw 4% of your starting portfolio balance, increase it annually for inflation, and never change it. Simple, predictable, and for a lot of retirees, too rigid to actually work well over a 25 or 30-year retirement.
Vanguard’s 2025 research found that retirees using dynamic withdrawal strategies, ones where spending adjusts modestly based on portfolio performance, spent more over their lifetimes compared to those using fixed withdrawal approaches. Year to year the difference feels small. Compounded across a full retirement, it’s significant.
A guardrails approach is one of the cleaner ways to implement this. You set a starting withdrawal rate, somewhere around 4% to 6% (depends on several factors), and establish upper and lower spending boundaries. If your portfolio grows meaningfully above your inflation-adjusted baseline, you give yourself permission to spend a bit more. If it drops below, you pull back modestly on discretionary spending.
The word discretionary is doing real work in that sentence. A well-built retirement income plan separates your essential expenses from your flexible ones. When a temporary market pullback calls for a modest cut, you’re adjusting the flexible layer. Maybe one fewer big trip that year. A home project pushed back a season. You’re not cutting your quality of life in any meaningful way. You’re managing it with some intentionality.
Over a full retirement horizon, this approach allows a higher starting withdrawal rate while lowering your odds of running out of money. That’s a trade-off worth working through before committing to a fixed number you’ll never adjust.
Keep Some Flexibility Around Your Retirement Date
Nobody wants to hear “maybe consider working a bit longer.” I understand that. For clients who are one or two years from their target retirement date when a meaningful market downturn hits, though, this conversation can be one of the most financially valuable ones we have.
Sequence of returns risk does its worst damage in the years immediately surrounding your retirement date. Your portfolio is at or near its peak value, withdrawals are beginning, and an early significant loss shrinks the base that all future growth compounds on. The math is hard to ignore. Two people with identical 20-year average returns can end up in dramatically different places depending entirely on whether the negative years came early or late in the sequence.
Working part-time for an additional year or two during a downturn accomplishes several things at once. Your portfolio gets time to recover without withdrawals pulling it further down. You’re still contributing and buying stocks at lower prices. And if you delay Social Security, your monthly benefit grows roughly 8% for each year you wait between 62 and 70. That guaranteed income increase has long-term value that’s easy to underestimate in the moment.
For most people I work with, this doesn’t mean staying in a career they’ve mentally moved on from. It might be consulting work in their field, a part-time role they actually enjoy, or a semi-retired arrangement that provides some income and structure without the full grind. I’ve helped a lot of families in those final five years of working map out exactly how to use that window well. The flexibility itself is a form of financial protection.
Run Roth Conversions During Down Market Years
This strategy turns a difficult market into a planning opportunity, and for clients with significant traditional IRA or 401(k) balances, it’s one of the more powerful tools available during the early years of retirement.
When your portfolio drops 20%, the taxable value of a Roth conversion drops with it. You’re paying taxes on a lower dollar amount, and when the market recovers, all of that growth happens inside the Roth, where it’s tax-free for the rest of your life. You’ve essentially purchased tax-free future growth at a discount relative to what you’d have paid before the downturn.
There’s also a cash flow benefit that connects directly to the bucket strategy. Strategic Roth conversions during down years can help refill your income buckets at a lower tax cost, without forcing you to sell equities at their lowest point. You’re moving money from tax-deferred to tax-free in a way that supports both your income plan and your long-term tax picture at the same time.
I’ve worked with pre-retirees with substantial retirement savings to map out multi-year conversion strategies, factoring in Social Security timing, other income sources, marginal tax brackets, and the long-term impact of required minimum distributions. The goal is always to pay taxes at the lowest possible rate across a full retirement, not just to minimize this year’s bill.
The most important part is having this plan documented before a downturn happens. When markets drop and your instinct is to do something protective, you want a written playbook that tells you exactly what to do. Roth conversions are a play on that list.
These Five Strategies Work as a System
None of these approaches stand alone particularly well. A cash bucket without a distribution plan creates confusion. Dynamic withdrawals without a cash reserve leave you exposed in the early years. Roth conversions without a full tax picture can create problems you didn’t see coming.
A retirement income strategy that actually holds up is designed as a connected system, built around your specific income needs, your tax situation, your guaranteed income sources, and the way you actually want to live in retirement. The market is going to do what it does. Your plan should account for that without depending on favorable timing to work.
If you’re within five to ten years of retirement and haven’t thought through how these pieces connect for your specific situation, that’s the conversation worth having before you get there.
I work with pre-retirees and retirees, based in Eagle, Idaho and across the country as a fee-only, fiduciary CFP®. If you’d like to walk through your retirement income strategy with someone who does this every day, you can book a free Retirement Strategy session Here. We’ll spend an hour looking at where you are, what you’re working toward, and whether there are gaps worth closing before retirement arrives.
Eagle Financial Planning is a fee-only, fiduciary investment advisory firm based in Eagle, Idaho. Content is for informational purposes only and does not constitute personalized investment advice.
