How Bonds Work in Retirement Portfolios

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Sometimes there’s a world of nuance hiding inside things we barely notice.

Kind of like the Dr. Seuss book, Horton Hears a Who!, where Horton the Elephant discovers Whoville, an entire microscopic city that exists on a floating speck of dust.

Well, this article is about one of those nuanced topics many people never think much about — but those of us in retirement planning think about all the time.

Bonds.

And as many retirees discovered in 2022, understanding bonds matters more than most people realize.

So here we go… into Whoville.

Today, Dana shares insight into How Bonds Work in Retirement Portfolios. Share on X

 

How Bonds Work in Retirement Portfolios

With this article, my goal is to help you better understand:

  • bond terms like yield-to-maturity and duration,
  • the difference between bonds and bond funds,
  • and how each may fit into different retirement strategies.

Wait. Have I lost a few of you already?

I promise I’ll try to make this nerdy topic as interesting as possible.

Why We Get Confused About Bonds

Bonds are supposed to be the safe, stable part of your portfolio… right?

So why does the financial media suddenly start talking about bonds every time interest rates change?

And why did many investors express alarm in 2022 when both bond funds and stock funds went down at the same time?

Here’s the source of much of the confusion:

There’s a big difference between:

  • owning an individual bond
  • and owning a bond fund

Most people lump them together as if they’re the same thing.

They’re not.

Once you understand the difference, much of the confusion around bonds starts to make sense.

What a Bond Actually Is

At the heart of every investment is one of two things: owning or lending.

  • With stocks, you own a piece of a business.
  • With bonds, you’re lending money.

You can lend money to:

  • the U.S. government in the form of treasury bills, notes, and bonds,
  • a city or state through municipal bonds,
  • to corporations through corporate bonds.

At its core, a bond is simply a contract between you and the borrower. It works like an interest-only mortgage with a balloon payment at the end.

You lend them money. They agree to terms such as:

  • Coupon rate — how much interest they’ll pay and how often.
  • Maturity date — when you get your principal back.

Like stocks, bonds can be purchased when first issued—or later, on the secondary market from another investor.

And just like stocks, you can buy them individually or own them through mutual funds or exchange-traded funds (ETFs).

Sounds pretty straightforward so far.

Likelihood of Getting Your Money Back

If we could all lend money with 100% assurance of being repaid, we would always lend to whoever offered the highest rate.

But those assurances don’t exist, so rates vary to compensate investors for risk.

Credit rating agencies evaluate the financial strength of borrowers and assign ratings to their bonds. Bonds with higher ratings are considered investment-grade.

In general:

  • investment-grade bonds = historically reliable
  • lower-quality bonds = higher yields but more risk

When we talk about bond risk, there are really two different types:

  • Default risk — the issuer fails to repay you.
  • Interest rate risk — bond prices fluctuate as interest rates change.

Let’s look at each.

The Risk of Default

Bond ratings make default risk relatively easy to assess.

Here’s what default rates have looked like over a cumulative 10-year period:

  • All investment-grade bonds: about 2.2%.
    • And even in a default case, bondholders have typically recovered 40 – 50% of the principal, so not a total loss.
  • Municipal bonds: about one-tenth of 1%.
  • Highest-rated investment grade: historical default rates near 0%.

That sounds reassuring.

Yet in 2022, both bond and stock funds fell sharply at the same time, and suddenly the media was talking about the “broken” 60/40 portfolio (60% stocks/40% bonds).

Why?

Default risk wasn’t the problem.

Interest rate risk was.

Bond Prices & Interest Rates


(ChatGPT/Claude)

When interest rates rise, existing bond prices typically fall.

When interest rates fall, existing bond prices typically rise.

An example helps explain why.

Suppose you lend me $1,000 for 10 years at 4% interest. Five years later, new 5-year bonds are paying 6%.

Now your bond is less attractive. Why would someone pay you full price for a bond paying 4% when they could buy a new issue bond paying 6%?

They wouldn’t.

So your bond would trade at a discount — about $915. That discount compensates the buyer for receiving lower interest payments relative to current market rates. When they eventually receive the full $1,000 at maturity, their total return becomes similar to buying a newly issued 6% bond.

The opposite happens when interest rates fall. If new bonds are paying only 2%, your 4% bond becomes more valuable and will trade at a premium.

A simple rule of thumb is this:

  • If interest rates rise 1%, a bond with 5 years remaining to maturity may fall roughly 5% in value.
  • If interest rates fall 1%, it may rise roughly 5% in value.

The graphic above illustrates the same relationship for a bond with 10 years remaining to maturity. You can find more specific math and a detailed explanation in this American Association of Individual Investors article on How Interest Rate Changes Affect the Price of Bonds.

Because bond prices fluctuate, investors focus on yield-to-maturity (YTM), not just the coupon rate. YTM reflects both the interest payments and any gain or loss between the purchase price and the amount received at maturity.

This is why a bond paying only a 2% coupon may still offer a 4–5% yield if purchased at a sufficient discount.

Bonds and Performance Measurement

Bond price fluctuations are one reason I think short-term investment performance can be a misleading metric in retirement.

Suppose you own a ladder of individual bonds and plan to hold them until maturity. If interest rates rise, the market value of those bonds may temporarily decline.

On paper, your account statement may show a loss.

But if you plan to hold the bonds to maturity, and the issuers remain financially sound, nothing about your future cash flow has actually changed.

You still know:

  • What you’ll receive
  • When you’ll receive it

In retirement, it often makes sense to focus less on short-term account values and more on whether investments are aligned with future spending needs.

Bonds and Bucketing Strategies

Because investment-grade bonds have relatively predictable cash flows — known maturity dates, principal amounts, and coupon payments — they work well in bucketing or asset-liability matching strategies.

If I know I’ll need to withdraw $50,000 next year and I own a bond maturing at roughly that amount, I don’t have to worry much about market fluctuations or interest rate changes.

The bond’s maturity date is already aligned with the cash flow I need.

That predictability can be especially valuable in retirement, when the goal is no longer simply maximizing returns, but creating dependable income.

Bonds vs Bond Funds

For the assurance of getting your money back, you can either stick with top-rated bonds and accept lower yields, or venture into lower-rated bonds that pay more but carry higher default risk.

While default rates on investment-grade bonds are relatively low, they are not zero.

So rather than owning just a handful of bonds — where a single default could meaningfully impact your portfolio — bond funds allow you to diversify across many issuers and maturities.

Three common types of bond funds are:

  • Total return or total market funds, which own many types of bonds across varying maturities
  • Short-term bond funds, which focus on bonds maturing within a few years
  • High-yield bond funds, which own lower-rated, non-investment-grade bonds

With a bond fund, you gain diversification and professional management.

But unlike an individual bond, you no longer have a specific maturity date — making it harder to know exactly what you’ll get and when.

So what metric should you focus on instead?

Bond Funds & Duration

When you sell shares of a bond fund, the price depends largely on prevailing interest rates relative to the collective coupon rates of the underlying bonds.

That’s where duration comes in.

Duration provides a way to estimate how sensitive a bond fund is to changes in interest rates. The higher the duration, the more sensitive the fund’s share price becomes to interest rate changes.

Just as a 5-year individual bond value might fluctuate roughly 5% for a 1% interest rate change, a bond fund with a 5-year duration may behave similarly.

If you really want to dive into Whoville, there are even different ways to measure duration. A short AI chat on Macaulay Duration will probably provide more information than you ever wanted to know.

For a less nerdy primer on bonds, watch my YouTube video on “Understanding the Income Side of Investing,” where I try to keep it simple and under 20 minutes.

Bond Funds & the Bucket Strategy

A bond fund with a 5-year duration might seem like a good fit for a mid-term bucket — money you expect to spend about five years from now.

But there’s an important difference between a bond fund and an individual bond.

An individual bond’s maturity date gets shorter every year. A bond fund’s duration typically stays relatively constant because the underlying bonds are continually being replaced.

So as the time for a withdrawal gets closer, the fund may still carry meaningful interest rate risk.

For example, if rates rise 2%, a fund with a 5-year duration could decline roughly 10% in value.

That doesn’t necessarily matter if the fund is part of a long-term total return strategy.

But if the money is needed soon for retirement income and counted on as the “stable” part of your portfolio, those fluctuations can create additional uncertainty that must be managed.

Some hybrid structures attempt to address this issue. Funds such as Invesco’s BulletShares ETFs (no affiliation) hold diversified baskets of bonds that mature in a specific year, creating something that behaves more like an individual bond ladder while still offering diversification.

Fritz here with a quick comment:  I use the BulletShares Dana mentions above in my personal Bond Ladder, which currently has annually expiring rungs covering 50% of my annual spending through 2036.  I consider it part of the second bucket in my Bucket Strategy. To see how I constructed it, read “How To Build A Bond Ladder.“

Bond Funds in the Total Return Approach

Now, if you’re using a total return approach, you are likely to approach bonds differently.

With a total return strategy, bonds are not necessarily there to provide a known maturity value at a specific date. Instead, they serve as the stabilizing portion of the portfolio that can potentially hold up better when stocks decline.

During market downturns, retirees may rebalance by selling bonds and buying stocks at lower prices.

Duration still matters because it tells you how sensitive the bond fund may be to interest rate changes. But short-term price fluctuations are generally less important because the strategy is built around managing the portfolio as a whole rather than matching individual bonds to future spending needs.

Of course, as we saw in 2022, bonds and stocks can sometimes decline at the same time.

With individual bonds maturing each year, this may have little impact on the cash flow you need. With a bond fund, however, it could mean selling shares during a decline.

One Other Distinction – Expenses

With a bond fund, you pay an ongoing expense ratio each year.

With individual bonds, there’s typically no annual expense ratio. Instead, the cost is built into the bid/ask spread when the bond is purchased.

Sorting Through the Confusion

As is the case with all investments, different tools serve different purposes.

Individual bonds can provide predictability and known cash flows. Bond funds can provide diversification and flexibility. Neither is inherently “better.” The key is understanding how each behaves, what role it plays in your portfolio, and whether that role aligns with when and how you plan to spend your money in retirement.

With inflation still running hot and corporate earnings remaining strong, there’s growing discussion that rates could stay higher for longer — or even rise further.

Yes, bond prices on paper will fluctuate if this happens.

But when you understand what you own, why you own it, and when you plan to use it, those short-term price movements become far less important.

In retirement, understanding how different investments behave matters. It helps you stick with the plan during volatile markets.

And sometimes that insight starts with a trip into Whoville to better understand the parts of a portfolio that are easy to overlook.

What About You?

How do you use bonds in your portfolio? Have you had any surprises or insights that you wish you had known earlier? Share your experiences in the comments below.

41 comments

  1. Bonds are more volatile than stocks over 20-year time horizons and underperform stocks during periods of high inflation because of the duration risk. Because of this, I’m more comfortable owning 100% stocks in retirement.

    1. I’m with you David. 100% stocks for me, but that is only because I don’t have to withdraw from my retirement portfolio unless I want to. Cash flows are sufficient for everyday expenses plus some. Thus, I have more wiggle room than someone that has to rely on their portfolio to make ends meet.

    2. Very interesting! Not for everyone, but I can see why someone with a high short-term risk tolerance would approach it this way. Would have been very scary in 2008/2009 – but then no matter what you did, that was a scary time to be a new retiree. -Dana

    3. Please provide correspondence that validates Bonds are more volatile than stocks over 20 year horizons?
      Also as the article says, Duration has a lot to do with volatility…see 2022: TLT (-31%), AGG (-15%), FLOT (+1%). Per M* the 3 YR standard deviation of SPY is 13.3. AGG is 5.5.

        1. I read Jeremy Siegel’s book-> Stocks for the Long run. Review-> All depends on the Duration of the Bond. Just making a blanket statement that “Bonds are more volatile than stocks” is not informative.

          1. “For 20-year holding periods, stock returns have never fallen below inflation, while returns for bonds and bills once fell as much as 3% per year below the inflation rate for two decades.”

            Maybe you need to re-read, or sharpen your reading skills.

    4. That is why I buy bonds and not bond funds/ETF. I hold bonds till maturity and get my principal back.

      Bonds (not bond funds) are a hedge against the sequence of return risk.

      1. Please provide correspondence that Bond Funds are NOT a hedge for SOR Risks?.
        I Retired in January 2022 and to HEDGE my SOR Risk I had ~10% each in DODLX, ICSH, FFRHX, PIRMX. In 2022 my Bond portfolio was down (-3.5%) vs. AGG (-13%), IEF (-15%). I also had 18 months of Cash Equivalents. My Bond funds Diversified my portfolio just like they suppose to.
        Also it all depends on the ‘duration’ of those Individual Bonds. Most bonds and bond funds are still Negative looking at a 5 YR Total Return chart.

        1. Genuinely curious how is a bond held to maturity, down? Doesn’t a 10 year rolling Treasury ladder where each bond is held to maturity, for example, continue to provide cashflow and each maturing rung buys a bond at a higher rate if rates rise? With a bond fund, if you want to sell or rebalance in a rising rate environment you may have to sell at a loss?

      2. Amen to this! The 2022 disaster – and even more recent experience with bond funds – has prompted my moving to this approach Kees suggests. One question: how do you value those bonds in your portfolio balance sheet: market value or full principal value?

  2. I use the bucket method for my financial framework. My bond bucket component is comprised of US Treasury Series I Savings Bonds, the Vanguard Short-Term Corporate Bond Index Fund (VSCSX), and the Vanguard Short-Term Inflation-Protected Securities Fund (VTAPX).

    My plan for this bucket has been to generate a little income with some inflation protection over the foreseeable future.

  3. I use two bond ETFs in my Traditional IRA for stability and income. I project interest plus a little cash in the IRA will cover my RMDs for another 5 years without needing to sell any of the ETFs. A short term TIPS ETF is about 10% of my total portfolio including Roth and taxable accounts. An intermediate term Treasury ETF is another 20% of the total. I’m 65-30-5 target allocation. No bonds in Roth or taxable accounts.

  4. I have an ishare TIP ETF ladder stretching about 10 years and a corporate ETF ladder stretching 5. Keeps corporate price fluctuation low. Between them they cover my cash spending delta. If market is up I withdraw from stocks and I just reinvest the bond ETFs at maturity into the next year out rung of the ladder. Seems to work. But I still have to guesstimate post inflation adjustments (how much I will need). The TIPS pay dividends, but do not automatically reinvest to buy more TIPS shares. I get to do that on my own.

  5. Great article, Dana! So does the TSP G-fund (which government employees and military folks like me have access to) behave following the same rules you described in your article? I’ve heard it cannot lose principal, although I’ve also noticed the value doesn’t tend to rise highly when interest rates fall. Thanks in advance for your thoughts on this.

    1. The TSP-G fund is a unique investment. “By law, the G Fund must be invested in nonmarketable U.S. Treasury securities specially issued to the TSP.” – You’ll find this at the bottom of the composition page here: https://www.tsp.gov/funds-individual/g-fund/?tab=composition

      You are correct in that it is guaranteed and the share price fluctuates by a deminimus amount. The interest rate will fluctuate.

      Overall, it’s a very attractive option for stability and preservation of principal – or if using bucketing, for your short-term bucket. I believe (but am not 100% sure) that withdrawals are pro-rata, in which case, if you wanted to use the bucketing approach, after each withdrawal, you’d need to do some adjusting to the allocation.

      -Dana

      1. Dana – TSP withdrawals are pro rata. The plan worked great for accumulation (and to roll private employer plans into) but was less than optimal for my withdrawals – similar to drawbacks of target date funds. I moved my balance to an IRA this year for more control on withdrawals, which will also allow me to do QCDs.

        1. Thank you for the clarification. And good point in the QCDs. For those who don’t need all their RMDs, that is a major reason to move to an IRA.

  6. Thanks, Dana,
    My DIY retirement has evolved in the decade since I was retired in 2015. Bonds were a portion of actively managed balanced funds when I began. As I got through the first five years, I learned to focus on net expense ratios. So I replaced Wellsley Income with VTI and BND, BIV, and VTIP. just in time for 2022. Since then, I have replaced bond funds with individual shorter term TIPS, Bills and Notes all less than 7 years, all held in the first two buckets of my bucket portfolio. Bucket Three is all equity, which in the long-run, the only real protection against inflation. I’m now entering the second decade of a DIY retirement and still learning!
    Jim
    @Iwasretired

  7. Good article! For my retirement, I prefer target maturity bond ETFs over individual bonds because they provide diversification across many issuers while still offering a defined maturity date. Also they reduce default risk, are easier to manage as ETFs, and typically provide better liquidity and lower transaction costs. Just get my “pay check” every month! I built a bond ladder that aligns with future spending needs…. I use BulletShares, but the are other providers like iShares (iBonds) and State Street (SPDR Target Maturity ETFs).

  8. I usually hold individual bonds to maturity especially my Muini bonds an old series I bonds when there was no cap on purchase amount but have other bond ETFs for diversification along with structured notes which for me worked like an indexed bond with principal protection although with some increased risk

  9. There is one unique aspect of bond investments that wasn’t mentioned here. If you live in a high-tax state, the advantages of a state- and federal-tax-free muni bond can be significant. The tax-equivalent yield on this fixed-income investment, with practically no risk, is very attractive relative to other alternatives, especially if you hold to maturity, as I expect to do.

    1. Excellent point for those with taxable brokerage account assets. And, treasuries are state tax-free. When comparing treasuries to other options, that should be a factor. -Dana

  10. Like some others, I am fortunate to not need to live off of my savings. However, I do hedge my bets by using Wellington and Wellesley funds to cushion stock market blows. I keep my overall portfolio at about 70/30.

    This is a great article on bonds and I appreciate the work that went into it. I need a periodic refresher because I don’t dabble in bonds at all. Many thanks!!

    1. Dom, thank you for acknowledging the work that went into it. Writing something technical that tries to explain in plain English takes hours. I appreciate you acknowledging the effort. 🙏 -Dana

  11. I retired in 2022 at 59YO. Basically was 60/40 portfolio in Rollover IRA as I am withdrawing (3.5%). As I am now through SOR Risk I have paired back Bond exposure to (25%) keeping my duration in the 5 YR range and Diversifying my Bond portfolio. DODLX and ICSH at (7.5%) each. APFPX and PIRMX at 5% each.
    I have a Total Return portfolio. No buckets. ~2 years withdrawals in ICSH -> Ultra-short Cash Equivalent.
    This allocation will change when drawing SS at 67 YO.

  12. Fantastic article – the chart alone of Bond price/Interest rate was worth the price of admission. In our own portfolio, we use Whole Life insurance as our bond proxy (in essence – it is getting the returns of a professionally run bond portfolio – without the volatility). Over the years, our policies earn around 4% net (net fees/net taxes) on an ongoing basis – allows for loans if needed (lien against DB) for volatility buffer & known liability expenses, and of course riders for LTC and disability should they occur.

    1. Thank you, Paul! The bond price/interest rate chart was a joint effort between Fritz, ChatGPT, me, and Claude! Two humans and two AIs to get it right. Lol! – Dana

  13. Great article. We’re 59 and have been retired for two years. We’re around 60/40 and are fortunate that our portfolio provides yield in excess of our annual budget. Along with a rolling 10 year Treasury ladder, we own NEOS funds, which are option overlay funds that track an index, are very cleverly tax efficient (we have in Roth, so irrelevant), don’t simply return capital at all, and provide an average of 12% dividend. They underperform a bit in huge bull runs but cushion equity losses a bit in down and sideways markets. I’ve had many debates with some very well respected financial advisor/ journalists who actually changed their mind about these ETFs, at least for my circumstances and for retirees who are overweight bonds because they fear equity exposure. Essentially, these ETFs specifically let you wait down markets out, as individual bonds do. I don’t work for NEOS 🙂. I just spend inordinate amounts of time researching financial topics because I enjoy it, and have found these ETFs a good way to increase equity exposure, reduce bonds, while reducing some fear.

  14. Excellent article
    I use bucket approach. At age 67, equity 75 %, individual bonds 25%.
    In IRA – TIPS and nominal bond ladder
    in taxable account I-bonds and T-bills ( both in short term bucket and state tax free). Will collect SS at 70.

  15. Good article and nice assessment that “Neither is inherently ‘better.’ ” I now have about 10 yrs of experience holding an intermediate bond fund (VCOBX) along with BND and BNDX, all in our tax-deferred accounts, and we have not yet sold any shares or withdrawn the funds. Instead, the monthly divs are re-invested back into the funds. It’s done automatically so it feels like dollar-cost-average investing into a diversified fund. From 2016-2020 the price of VCOBX was basically flat. Then it went up, then came down a bunch in 2022 and then became flat again. Throughout that time the monthly divs came regularly.

  16. Dana, thanks for the good article. I think you covered the subject quite well. The only thing I would add is that inflation and loss of purchasing power is a very important topic to consider when buying bonds. The article seemed to primarily focus on the nominal value of the bonds, for example when discussing owning a specific bond and knowing exactly how much will be received when the bond matures as long as the issuer does not default. That is correct in nominal terms but does not reflect the effect of inflation on purchasing power over the term of the bond. That is why I have a very hard time buying nominal bonds. My focus is primarily on building a TIPS bond ladder using the iShares ETFs so that I know how much I will have in purchasing power in 4, 5, 6, 7 years in the future. Of course, we can debate whether the CPI truly reflects inflation…. but that is a debate for another day. In the end, it is purchasing power that matters.

    1. Hi John, yes, I feel the nominal discussion is a planning discussion first. The way you do the planning leads to the product. For example, we inflate all cash flow needs. If someone needs $60,000 in year 1, we assume they need $62,000 in year 2, and so on. Also, we find cash flow needs aren’t linear. They vary a lot based on things such as: spouses retiring at different times, SS start dates, pension start dates, phased retirement for those who gradually wind down, and varying expenses such as planned auto purchases or additional Go-Go spending. So we find it almost impossible to say, “Yep, I’ll need $60k per year in nominal spending.” Instead, we project all the varying cash flows with inflation baked in, and then buy the nominal bond amount to cover it. We’ve also found TIPS aren’t always the greatest hedge against inflation. But absolutely, if the need was projected in nominal dollars, you could use TIPS or iBonds to have some mechanism for adjusting that for future needs. Like so many things, I think both approaches have merit depending on the situation and how the planning is done. -Dana

      1. I guess your approach can work assuming you know what inflation is going to be in the future :). Unfortunately that is pretty hard to guess. For example, who would have guessed prior to 1965 that inflation would jump up to over 6% in 1969 and then go on to hit double digits in the early 1970s? Prior to 2021, who would have guessed that inflation would hit 9%+ in the next couple of years? So, what nominal value of bonds would you have purchased for your clients retiring in 1964 or 2019 if they wanted $40,000/year in purchasing power for the next 10 years? That’s why I am not convinced that buying nominal bonds (even inflated using some assumed inflation rate of 2-3%) can properly account for future devaluation of the dollar and reduced purchasing power. Hence my strong preference for TIPS (particularly a ladder of TIPS that mature in specific years), even though I know that the CPI used in calculating inflation adjustments is not at all perfect.

        1. I think either approach gets you approximately right. This site does a good comparison: https://tipswatch.com/tips-vs-nominal-treasurys/

          In our approach, the income ladder is not there to match every dollar of spending. It is a risk management strategy to cover about the amount of spending needed to prevent loss selling in years like 2022.

          So far, if someone needed $60,000 and inflation was 3% higher than we expected, we haven’t had any issues covering the, in this case, approximately $1,800 different from dividends, equity appreciation or cash on hand. I realize over longer periods of sustained inflation that difference would be greater – and, over longer periods equities have proven a great inflation hedge, providing us the means to cover larger gaps later.

          But we really haven’t seen large gaps. What we have seen are people spending lots more than they originally planned – simply because they can and want to.

  17. Retirees…like me …Ensures their TOTAL PORTFOLIO delivers A Real Return > INFLATION. I hold the minimum amount of Bonds that ensures a Diversified portfolio. The idea of 100% stocks has been tore apart in Retirement. UNLESS a Retiree has 2-4 years of Cash.

  18. Currently building a bond ladder for myself and my 82 YO MIL using Bullet Shares. What’s the advantage of having bucket 1 in MMIA vs having more rungs in the ladder? My plan is to have 18 months of withdrawals and my emergency fund in MMIA and a 6-7 year bond ladder. When the Bullet Shares mature in December, I move the funds to my MMIA and I have my withdrawals funded for the next year. This should result in better yield for the two buckets.

    I’m in a transition from full time employment to retirement. For the next 5 years I am living off of a deferred compensation account and cash, MMIA and Bullet Shares, until I start social security and 401k withdrawals at age 70.

    1. Usually the 1 year in money market is to cover the immediately upcoming 12 months. And to cover gaps between when the cash flow is needed and when the bond matures. We find people’s cash flows are not always predictable so we like a buffer to cover various requests that come up. – Dana

      1. Thanks, I was asking in the context of the classic bucket method of 3 years in MMIA and 5 years in bonds/reits/dividends. Sounds like you are in line with my thinking of 1 year and a buffer in MMIA and a bond ladder for the next 4-7 years depending on how conservative your bucket approach is.

        1. Yes, 3 years in MMIA seems like a lot to me. If your priority was maximum spending flexibility, I could see that as a strategy. JP Morgan research shows “spending volatility” – spending swings of 20% or more from year to year in retirement. So having a large cash bucket would more easily account for those swings.

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