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Most “how to protect your portfolio” advice is recycled boilerplate. Buy bonds. Stay diversified. Don’t panic. Useful if you’re 22. Borderline negligent if you’re 55 and the market just took a 25% bite out of your nest egg.
The five years before retirement and the five years after are where portfolios get wrecked. Sequence-of-returns risk is the technical name. Bad luck on timing is the plain English version. A 60-year-old who retires into a bear market and keeps drawing 4% can run out of money two decades earlier than the same retiree who got lucky with timing.
Here’s what moves the needle – five real strategies, the mechanics behind each, and where robo advisors quietly automate a lot of it.
1. De-Risk the Glide Path (Without Going Full Bond)
The old “age in bonds” rule (subtract your age from 100 to get your stock allocation) is a simplification, but the principle holds. As you age, you have less time to recover from a drawdown, so you trade some upside for less variance.
A reasonable glide path looks something like this:
| Age | Stocks | Bonds | Cash / Short-Duration |
|---|---|---|---|
| 30 | 80% | 20% | 0% |
| 40 | 75% | 25% | 0% |
| 50 | 65% | 35% | 0% |
| 60 | 55% | 40% | 5% |
| 65+ | 50% | 40% | 10% |
Why it matters in practice: 2022 was a bad year for both stocks and bonds, but the spread was real. A $1M all-equity portfolio dropped roughly 19% (S&P 500 total return). A $1M 60/40 portfolio dropped roughly 16%. An 80/20 portfolio dropped about 17%. The difference between an 80/20 and a 50/50 was around three points of pain – $30K on a million.
That gap looks small in isolation. It is not small if you’re three years from retirement and need to draw from the portfolio next year.
The mistake people make is going too defensive too early. Going to 30/70 at age 55 will probably cost you more in lost compounding over the next 30 years of retirement than it saves you in volatility.
2. Build a Cash Bucket for the 1-3 Years Before Retirement
The bucket strategy is one of the few retirement planning ideas that survives contact with reality. The mechanics are simple:
- Bucket 1: 1-3 years of expenses in cash, T-bills, or short-duration treasuries. Earns ~4-5% in 2026 money market funds.
- Bucket 2: 4-10 years of expenses in bonds and conservative income assets.
- Bucket 3: 10+ years in stocks. This is where growth happens.
When a bear market hits, you draw from Bucket 1. Equities get time to recover. You’re not selling stocks at a 30% discount to fund groceries.
The math: if you retired in January 2008 with a $1M portfolio and a $40K annual withdrawal, the difference between selling equities through the crash and pulling from a cash bucket for two years was roughly $150-200K in terminal portfolio value by 2018. Not theoretical. The sequence destroys you.
You start filling Bucket 1 about three years out. Trim from Bucket 3 during good years, top up cash. Don’t try to time it – just rebalance quarterly. Some hybrid robo advisors automate this with retirement-income products, though most still expect you to do bucket-level allocation manually.
3. Get the Withdrawal Order Right (This Is Where the Tax Math Lives)
Most retirees draw from accounts in the order they remember opening them. That’s expensive. The general optimal order:
- Taxable accounts first. Long-term capital gains rates (0%, 15%, 20%) are lower than ordinary income rates. Step-up in basis at death also makes taxable accounts the worst to leave to heirs – so use them yourself.
- Tax-deferred accounts second. Traditional 401(k)s and IRAs. Everything you pull is taxed as ordinary income.
- Roth accounts last. Tax-free growth, no RMDs (for original owner), best vehicle to leave to heirs.
The math on a $1.5M retiree with $500K in each bucket: draining the taxable account first at 15% long-term gains, then tax-deferred at 22% ordinary, then Roth tax-free, can save $80-150K in lifetime taxes versus the reverse order. Compounding tax-deferred and Roth balances for an extra 10-15 years is the real win.
This breaks in two situations: when required minimum distributions (RMDs) at age 73 will push you into a higher bracket later, or when you expect tax rates to rise meaningfully. In both cases, you draw from tax-deferred earlier to flatten lifetime tax exposure.
Pair this with tax-loss harvesting in the taxable bucket and you stack two layers of tax efficiency.
4. Roth Conversions in the Low-Income Window
This is the single biggest underused move for early retirees. The window: roughly between when you retire and when Social Security plus RMDs kick in around age 70-73. Earned income is low. You can fill up the lower tax brackets cheaply.
The mechanic: convert chunks of traditional IRA money to Roth IRA. You pay ordinary income tax on the conversion now. Future growth is tax-free, no RMDs, better for heirs.
The sweet spot is converting enough each year to fill the 12% and 22% brackets without spilling into 24%+. In 2026 numbers, that’s roughly converting $50-90K per year for a married couple sitting in the low-income window.
Worked example: a 65-year-old with $800K in a traditional IRA, retiring at 65, taking Social Security at 70. Five years of $60K conversions at an effective 15-18% rate = $300K moved to Roth at an average tax cost of ~$50K. Versus leaving it in the traditional IRA and watching RMDs push the surviving spouse into the 32% bracket at 75 – potential lifetime tax savings of $80-120K.
The catch: conversions are irreversible since the 2017 tax law. Don’t convert more than you can comfortably pay tax on with non-retirement cash, and don’t convert in years you also realize big capital gains.
5. Don’t Try to Time the Exit
The single most expensive thing pre-retirees do is go to cash because they “feel” a crash coming. The intuition is understandable. The track record is dismal.
People who moved to cash in March 2020 missed a 70%+ rally over the next two years. People who moved to cash in late 2022 missed a 25% S&P run in 2023. Even people who got the call right – moved to cash in 2007 – usually got the re-entry wrong and bought back in 2010 or later, having missed the recovery.
Rebalancing is different from market timing. If your target is 60/40 and stocks rip to 70/30, trimming back to 60/40 is fine. That’s discipline, not prediction. What’s not fine: going to 100% cash because a YouTube guy with a Lambo says the dollar is collapsing.
If you genuinely cannot stomach a 30% drawdown in your last working years, the answer is to lower your equity target to 50/50 or 45/55 permanently – not to flip back and forth based on headlines.
Where Robo Advisors Actually Help
Most of this is automatable, and the better platforms handle pieces of it without you thinking about it.
- Target-date glide paths: Almost every robo advisor offers age-based glide paths that gradually shift toward bonds. Betterment and Wealthfront both do this well at the entry tier.
- Bucket strategy automation: Empower and Vanguard Personal Advisor Services structure retirement income plans around bucket logic, though execution still requires advisor-level oversight.
- Tax-aware withdrawals: Wealthfront Path and the higher-tier hybrid platforms model withdrawal order across account types. This is where you get real value out of paying for the higher tier.
- Roth conversion modeling: Empower and Vanguard PAS both run conversion ladders as part of retirement planning. Pure robo platforms generally don’t.
If your portfolio is north of $500K and you’re within ten years of retirement, the case for a hybrid advisor (human plus automation) gets stronger. The annual fee of 0.30-0.50% pays for itself if it prevents one panicked move to cash or captures three years of Roth conversions you would otherwise miss. See the best robo advisors for high net worth comparison for who actually does this well.
FAQ
How should I change my portfolio as I get older?
Shift gradually from heavy equity to balanced, not from heavy equity to heavy bonds. A reasonable arc: 80/20 in your 30s, 65/35 at 50, 55/40/5 at 60, 50/40/10 at 65+. Going too defensive too early costs more in lost compounding than it saves in volatility.
What’s the bucket strategy for retirement?
Hold 1-3 years of expenses in cash or short-term treasuries (Bucket 1), 4-10 years in bonds (Bucket 2), and 10+ years in stocks (Bucket 3). When markets crash, draw from Bucket 1 so you’re not selling equities at a discount. Refill Bucket 1 from Bucket 3 in good years.
Should I move my 401(k) to cash before retirement?
No. Move a portion – typically 5-10% as a near-term cash bucket – but going fully to cash before retirement guarantees inflation eats your purchasing power over a 30-year retirement. The historical odds of an all-cash retirement portfolio outlasting a 30-year retirement at a 4% withdrawal rate are roughly zero.
What is sequence-of-returns risk?
The risk that the order of investment returns – not the average – destroys your portfolio. Two retirees with identical average annual returns over 30 years can have vastly different outcomes if one hit big losses early in retirement while drawing down. The first few years matter disproportionately.
When should I do Roth conversions?
In low-income years, typically between retirement and the start of Social Security plus RMDs (so roughly age 60-73 for many). The goal is to fill the 12% and 22% tax brackets with conversions without spilling into 24%+. Don’t convert in years you also realize large capital gains.
Do robo advisors handle retirement glide paths?
Most do, at least at a basic level. Target-date strategies and age-based glide paths are standard across Betterment, Wealthfront, Schwab Intelligent Portfolios, and Vanguard Digital Advisor. The more sophisticated work – bucket strategies, tax-aware withdrawal sequencing, Roth conversion ladders – generally requires a hybrid platform like Vanguard PAS, Empower, or Wealthfront Path.
