Retirement bucket strategies have a way of getting complicated fast. 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 overall 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 the current inflation environment.
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. The 3-month Treasury bill yields 3.81% as of July 9, 2026, while the 10-year Treasury yield sits at 4.54% as of July 10, 2026. The federal funds rate has been held steady at 3.50% to 3.75% for four consecutive meetings through the June 17, 2026 FOMC decision. That stability may not last: the Fed’s June projections revised the 2026 PCE inflation forecast sharply higher, to 3.6%, and a meaningful number of policymakers have begun discussing potential rate hikes before year-end. For cash parked in a savings account, that policy uncertainty cuts both ways.
Meanwhile, consumer inflation expectations remain elevated. The University of Michigan Consumer Sentiment index stood at 49.5 in June 2026, recovering from a record low of 44.8 in May but still sitting 13% below its February reading before Middle East conflict disrupted energy markets. Year-ahead inflation expectations held at a still-elevated 4.6% in June. Cash earning roughly 4% is effectively treading water against those expectations, 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 | JPM Price Prediction) and Bank of America (NYSE:BAC) pay 0.01% APY on basic savings accounts, while online banks like CIT Bank offer up to 4.10% APY through a promotional rate on balances of $5,000 or more. 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 reached $23.05 trillion on a seasonally adjusted basis as of May 2026, up from $22.69 trillion in March, with a meaningful share still parked in checking and savings accounts paying close to zero. The national average savings rate tracked by the FDIC sits at just 0.38% as of June 2026, meaning the typical depositor at a large bank is falling far behind even the most modest short-term Treasury yields.
What to Watch Next
The behavioral case for McDonald’s one-year rule actually strengthens when sentiment sours. With consumer confidence still near historic lows and year-ahead inflation expectations running well above the Fed’s 2% target, retirees who carry only twelve months of spending in cash have less to second-guess when markets wobble. The bucket itself becomes the spending plan, removing the temptation to tinker.
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 compounds. For a retiree watching a 3.81% T-bill yield and a 4.54% 10-year Treasury, that arithmetic still points in one direction: keep cash lean, stay invested, and rebalance on schedule.
Editor’s note: This article was updated to reflect July 2026 Treasury yield data (3-month T-bill at 3.81%, 10-year at 4.54%), the Fed’s June 17, 2026 decision to hold the funds rate at 3.50%–3.75% with updated PCE inflation projections of 3.6% for 2026, M2 money supply revised to $23.05 trillion as of May 2026, the FDIC national average savings rate of 0.38% as of June 2026, and University of Michigan consumer sentiment updated to a final June 2026 reading of 49.5, recovering from the record low of 44.8 in May.
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