Retirement bucket strategies have a way of getting complicated quickly. Don McDonald, co-host of Talking Real Money, prefers a far simpler framework: keep exactly one year of spending in safe money, rebalance once a year, and let the rest of the portfolio do its job.
The question came from a listener named Albert, who runs a 70/30 stock-to-bond IRA and wanted to know how many years of required minimum distributions belonged in his cash bucket. “A year,” McDonald said. “I like a year. I think a year makes everything really easy. It makes your annual rebalancing easier. It sets you up. If you do this at a set time every year, like the end of the year, and you put it away for the next year, it gives you a budget from which to work.”
For most retirees, that translates to a surprisingly small slice of the portfolio. “If you have a year’s worth of spending, that may amount to 5% of your portfolio,” McDonald said. The remaining 95% stays invested and continues compounding, which matters more than ever given where inflation sits today.
Why One Year, Not Three or Five
The traditional bucket strategy often calls for two to five years of cash to ride out bear markets. McDonald’s argument cuts against that orthodoxy because excess cash drags on long-term returns. Co-host Tom Seacock agreed, even while conceding that today’s yields are unusually generous. “The reason I don’t like cash is over the long haul, not currently. Currently it’s still, yeah, okay, as Don just pointed out, you’re still making 4%. Wonderful. How long that lasts? I don’t know,” Seacock said. His blunter version: “Cash, well, in the long haul is trash.”
The yield picture supports his caution. A 52-week Treasury bill yields 3.82% as of May 19, 2026, with shorter maturities ranging from 3.64% on the 4-week to 3.74% on the 26-week. That sits below the 3.75% upper bound on the federal funds rate, which has been stable since December 10, 2025 after the Fed trimmed 75 basis points off its September 2025 peak. The 10-year Treasury yield tells a different story, sitting at 4.61% as of May 18, 2026, the 99.6th percentile of the past 12 months.
Meanwhile, Core PCE has climbed from 125.79 in May 2025 to 129.28 in March 2026, sitting in the 90.9th percentile of the past year. Cash earning 4% is treading water against the Fed’s preferred inflation measure, which is precisely the long-term drag Seacock referenced.
The Hidden Cost of Lazy Cash
McDonald reserved his sharpest criticism for the big banks. JPMorgan Chase (NYSE:JPM | JPM Price Prediction) and Bank of America (NYSE:BAC) pay 0.01% APY on savings while online banks like CIT pay 4.1%. Seacock framed the opportunity cost in national terms: “Many of you are inefficient. You have money sitting around there. I bet there’s trillions of dollars sitting in those type of accounts making nothing.”
The macro data backs him up. M2 money supply hit $22.69 trillion as of March 1, 2026, with a meaningful share parked in checking and savings accounts paying close to zero. American households now hold $23.5 trillion in disposable personal income as of 2026Q1, while the savings rate has fallen to 4%, down from 6.2% in 2024Q1.
What to Watch Next
The behavioral case for McDonald’s one-year rule strengthens when sentiment sours. The University of Michigan consumer sentiment index sits at 53.3 as of March 2026, down 5.5% from February and well into pessimistic territory. Retirees who carry only twelve months of spending in cash have less to second-guess when markets wobble, because the bucket itself is the spending plan.
One year of expenses is enough liquidity to weather the next twelve months without selling stocks under duress, and small enough that the other 95% of the portfolio still gets to compound. For a retiree facing a 4% T-bill yield and a 4.61% 10-year, that math matters more than ever.
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