Sequence Risk Buffer Calculator
Size a cash buffer that lets you skip selling stocks in down years, protecting an early retirement from sequence-of-returns risk.
How it works
Annual gap = spending − other income · Buffer = gap × years to buffer · Buffer income = buffer × cash yield
Sequence-of-returns risk is the danger that a market crash early in retirement forces you to sell shares at depressed prices, permanently shrinking the portfolio. A cash-and-bonds buffer breaks that link: in a down year you spend from the buffer instead of selling stocks, giving the market time to recover. The buffer only needs to cover the gap between your spending and your guaranteed income, times the number of lean years you want to weather — typically two to three.
Worked example
Spending $45,000 a year with $15,000 from Social Security leaves a $30,000 gap. A 3-year buffer is $90,000, which at a 4% cash yield throws off $3,600 a year while it sits ready to bridge a market slump.
Frequently asked questions
How many years should the buffer cover?
Two to three years of spending is a common rule, since most market downturns recover within that window. A longer buffer is safer but drags on returns because cash earns less than stocks.
Why not just hold more bonds?
A dedicated buffer is psychological and mechanical: it gives you an explicit "do not sell stocks" reserve, which makes it easier to stay invested through a crash rather than panic-selling.
Does other income reduce the buffer?
Yes. Only the spending your portfolio must cover is exposed to sequence risk, so pensions and Social Security shrink the gap and therefore the buffer you need.
Related calculators
Educational estimate using simplified assumptions — real returns, taxes and fees vary. Not financial advice.