When planning out your retirement spending it's important to make sure your money will last as long as you do.  That means you want to make sure your money lasts longer than you will.   One of the ways to do this is to put your money into several buckets.  The first is your cash bucket.  This is 2 years of living expenses so that if the market goes down you don't have to be drawing from your investments in a time that they are going down.  For example, if you need $100,000 in a given year and you take that from a $1million portfolio you are drawing 10%, but if that portfolio goes down to $500,000 in a down market the same $100k is now 20% of your money and it will be difficult to build that back.  In times when the market goes up, you can replenish your cash bucket and your interim bucket.  You will likely want your cash bucket to be the money you absolutely need to live on for the next 2 years, then a fixed income bucket with bonds, CDs and/or annuities that have downside protection to be in the middle bucket.  It is money that will earn more than the cash accounts, but will still be relatively safe.  This can also be money that is your "fun money" and if you need to cut back on a vacation or skip a splurge purchase or put off a car purchase for example, you can do that if the market looks like it will take longer to recover.   Finally you have your equity bucket which is more risky and should have your 5+ year investments.  This way if the market goes up significantly, you can take some of the earnings, but if the market goes down you can put more money in there as opposed to having your money you need to live now at a fraction of what it was before.

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