Strategy: risk and volatility management
Markets will fall again. The plan should not.
The S&P 500 has fallen 10% or more 56 times in the 96 years since 1928, and 22 of those declines reached 20%, so a retirement plan cannot be built on declines staying away. We manage the three risks that actually end retirements: running out of money, selling investments to pay for living costs after a drop, and abandoning the plan at the wrong moment. The tools are a cash and bond runway, rebalancing rules written in advance, spending guardrails, diversification that holds up under stress, and a plan that has already been tested against the bad years.
The situation
Volatility is the weather. Three things sink the plan.
A 20% decline at forty-five is unpleasant and mostly harmless, because the paycheck keeps arriving and nothing has to be sold. The same decline at sixty-seven, with withdrawals underway, is a different event. Every dollar sold to pay for living costs after the drop is a dollar that is no longer there when prices recover.
That is why we do not treat volatility itself as the risk. The risks that end retirements are three: outliving the money, being forced to sell after a decline, and leaving the plan at the worst moment. A portfolio can be built so that none of the three depends on what the market does in any single year.
Most portfolios arrive in retirement inherited from the accumulation years, when a bad year was an inconvenience. The work here is to rebuild the structure around the withdrawals: what pays the bills while stocks are down, which rule fires when weights drift, what spending does after a bad stretch, and whether the diversification on the statement is real.
Why it’s complex
Five decisions that decide how a bad year lands
How many years of spending sit outside stocks
Too little runway and a decline forces sales near the bottom. Too much and inflation quietly erodes the reserve for decades. We size it in years of the gap the portfolio must cover, not as a percentage of the whole.
Read the guideWhich rule fires the rebalance
A calendar rule trades on a date. A band rule trades when an asset class drifts past a threshold set in advance. In a taxable account each trade carries a tax cost, so the rule and the account it runs in are decided together.
Read the guideWhat spending does after a bad year
A fixed inflation-adjusted withdrawal ignores the portfolio. A guardrail trims it when the withdrawal rate drifts too far. The trade is a modest cut in a bad stretch against a much lower chance of running short later.
Read the guideWhether the diversification is real
Fourteen funds can be one bet held fourteen times. We read through each holding to what it owns, give every position a role, and remove the ones that duplicate a risk the portfolio already carries.
Read the guideWhich account pays in a down year
Drawing from a taxable account, an IRA, or a Roth changes the tax bill and what is left to recover. A decline also opens room for loss harvesting and Roth conversions, if the order was decided before it arrived.
Read the guideSources: Yardeni Research, Stock Market Historical Tables: Bull & Bear Markets (Jan. 2024), S&P data; Federal Reserve History, The Great Recession; Guyton and Klinger, Journal of Financial Planning, March 2006; FDIC.
Our approach
Built in the order the risks arrive
We start with the income the household needs before we touch the portfolio, because the runway, the rules, and the allocation all follow from that one number. The steps below are the sequence we work in with every household, whether retirement is three years out or already underway.
Separate the fixed income from the gap
Social Security, pensions, and any annuity income arrive regardless of markets. What they do not cover is the gap the portfolio must fund each year, and that gap, not the account balance, is the number every risk decision is sized against. We also set the horizon: a couple retiring at sixty-two may be planning for thirty-five years or more.
Build the runway
Two to three years of the gap sits in cash and Treasury bills, which mature in 4 to 52 weeks, with bank deposits kept within the $250,000 FDIC limit. Several more years sit in bonds that refill it. Living costs never have to sell a stock during a decline, which is the whole point.
Write the rules down
Rebalancing bands, the rule that refills the runway from gains, the guardrail that trims spending, and the account that pays first are all agreed while markets are calm. The SEC’s investor guide describes both calendar and threshold rebalancing; we choose one per account and record it. A rule written in advance is the only kind that gets followed in a bad year.
Diversify by role, then stress-test in dollars
Every holding earns a role: growth, ballast, liquidity, or income. Overlaps go. Then we run the plan through a 2008-scale decline and a 1970s-style inflation stretch and read the result as dollars of spending, year by year, rather than as a single probability of success.
Refill, harvest, re-test
Our Quarterly Rounds cycle through cash flow, risk, estate, and tax. Gains refill the runway, declines are harvested for tax losses, and the stress test is re-run whenever life changes: a sale, an inheritance, a health event, a move.
The work
What you’ll work through with us
- A written income map: what Social Security, pensions, and annuities cover, and the gap the portfolio must fund
- A cash and bond runway sized in years of that gap, placed within FDIC and Treasury limits
- Rebalancing rules with bands and a refill rule, and the tax cost of each in taxable accounts
- Spending guardrails with the trigger and the size of the adjustment agreed in advance
- A look-through review of every holding, with the role of each and the overlaps removed
- Stress tests against a 2008-scale decline and a 1970s-style inflation stretch, read in dollars
- A withdrawal order across taxable, tax-deferred, and Roth accounts, including what changes in a down year
- Social Security timing analyzed as longevity insurance, coordinated with the runway
Risk management at the firm is led by Theo Halbardier, CFP®, CIMA®, CAIA®, the firm’s founder. The CIMA® curriculum is portfolio construction and risk measurement; the CFP® work is the income plan the portfolio serves. We are fee-only: no commissions, no product sales. About Theo
Questions
Common questions about risk in retirement
What is sequence of returns risk?
It is the risk that poor market returns arrive early in retirement, while withdrawals are underway. Two retirees with the same thirty-year average return can end far apart if one met the bad years first, because dollars sold after a decline are gone before the recovery. The defense is structural: a cash and bond runway, a spending rule that bends, and a withdrawal order decided in advance.
How much cash should a retiree hold?
We size it in years of the spending gap the portfolio must cover, not as a percentage of assets. Two to three years of that gap in cash and Treasury bills, with several more years in bonds behind it, is a common starting point. A household whose pension and Social Security cover most of its spending needs far less runway than one funding everything from the portfolio.
What are retirement spending guardrails?
Rules agreed in advance for adjusting withdrawals when the portfolio moves sharply. In the version Guyton and Klinger published in 2006, spending is cut 10% when the withdrawal rate drifts more than 20% above its starting level, and raised 10% when it drifts 20% below. Their simulations found the adjustment made exhausting the portfolio far less likely, at the cost of a modest cut in the bad years.
How often should a retirement portfolio be rebalanced?
Either on a fixed schedule, such as every six or twelve months, or when an asset class drifts past a band set in advance; the SEC’s investor guide describes both. We prefer bands in tax-deferred accounts, where trades carry no tax cost, and wider bands or new-cash rebalancing in taxable accounts. The rule matters less than writing it down and following it after a decline.
Should I move to cash when the market falls?
Selling everything after a decline turns a temporary loss into a permanent one and creates a second decision, when to get back in, that is harder than the first. The better question is whether the plan already holds enough cash and bonds that no stock needs to be sold. If it does, a decline is a rebalancing and loss-harvesting opportunity rather than an emergency.
Does diversification protect against a crash?
Not from the decline itself. In a broad sell-off the stock side of a diversified portfolio falls too. What diversification does is keep the loss survivable and the recovery reachable: bonds and cash hold their role, which is what lets the runway pay the bills while stocks recover. Diversification is a way to be wrong about the future and still be all right.
Do you use annuities or buffered products to reduce risk?
We evaluate them; we do not sell them. An income annuity can move part of the fixed spending off the portfolio, which shrinks the gap and the runway it requires, at the cost of liquidity and of what is left to heirs. Buffered strategies trade away upside for a defined cushion. Each is compared against simply holding more bonds, and we are paid nothing either way.
Reviewed by Theo Halbardier, CFP® · Updated September 2026 · Figures current for 2026
Tell us what the portfolio has to pay for.
The first conversation is 30 minutes. Bring a rough idea of your spending and what already covers it; no preparation needed.
Meet with us