A 67-Year-Old Retiree’s $1.9 Million Portfolio Survived a $390,000 Drawdown Because of One Asset Allocation Choice Most Advisors Skip

A 67-year-old retiree watched a $1.9 million portfolio fall to $1.51 million during a sharp market decline, a 21% drop that would have rattled most investors. Her retirement plan remained intact because she never had to sell stocks to pay her bills. Before retiring, she built a five-year Treasury ladder and cash reserve specifically to protect against sequence-of-returns risk.

This situation comes up constantly in retirement-planning circles because sequence-of-returns risk is one of the greatest threats facing new retirees. A major market decline early in retirement can do lasting damage if living expenses force stock sales at depressed prices. A Treasury ladder provides an alternative source of income, allowing retirees to cover spending needs while giving the portfolio time to recover. The strategy does not prevent market losses, but it can prevent temporary declines from becoming permanent damage to a retirement plan.

The Snapshot

• Age and household: 67, single, fully retired
• Portfolio entering drawdown: $1.9 million
• Annual spending: $76,000
• Drawdown experienced: $390,000 (21%) during the March correction when the VIX spiked to almost 31
• What saved her: A $380,000 ladder of CDs and Treasuries maturing 2025 through 2029, funded before retirement

Why The Ladder Mattered More Than The Allocation

Most retirement advice focuses on asset allocation and withdrawal rates. The more important question during a market decline is which assets you spend first. Sequence-of-returns risk becomes dangerous when retirees are forced to sell stocks after a major downturn to fund living expenses. Those shares are then permanently removed from the portfolio and no longer participate in the eventual recovery.

The Treasury ladder prevented that outcome by separating spending assets from growth assets. While equities declined, living expenses came from maturing Treasury securities rather than stock sales. The front end of the ladder generated dependable cash flow, while the longer-dated rungs continued earning interest and the equity portfolio remained fully invested. Even as consumer confidence weakened and markets struggled, the retiree had no need to liquidate stocks at depressed prices.

When the market eventually recovered, the benefit became clear. The equity portfolio rebounded while a substantial portion of the Treasury ladder remained intact. By avoiding forced sales during the downturn, the retiree preserved capital that would otherwise have been lost to sequence-of-returns risk, allowing the portfolio to participate fully in the recovery.

Plug your own numbers in above. A 4% withdrawal rate on a $1.9 million portfolio funds exactly $76,000 per year, which is the spending figure this retiree built her ladder around.

Three Paths, Only One Works In A Drawdown

1. Fixed-percentage withdrawals from a single blended account. This is what most retirees do by default. It works in rising markets and quietly destroys wealth in falling ones. For anyone with a 20-plus year horizon and meaningful equity exposure, this is the inferior path. The math is not debatable: selling shares at a 21% discount to fund living expenses converts temporary volatility into permanent loss.
2. The bucket or reservoir approach. Popularized by Michael Kitces and Vanguard, this is the strategy that worked here. Hold one to two years of spending in cash, three to four more years in a Treasury or CD ladder, and the balance in equities. Refill the ladder annually from dividends and interest, not from selling principal. Rebalance the ladder’s maturity dates each January.
3. All-bond or annuity-heavy retirement. Eliminates sequence risk but introduces longevity and inflation risk. Core PCE just printed almost 130, still grinding higher month after month. A 30-year retirement priced entirely in fixed income loses real purchasing power even at today’s roughly 4.5% 10-year yield.

What To Do This Quarter

Three steps matter more than anything else. First, calculate five years of essential spending and build the Treasury ladder before retirement begins. The purpose of the ladder is to protect against sequence-of-returns risk, which means it must already be in place before the next market downturn arrives. Second, maintain a clear separation between spending assets and growth assets. The ladder exists to fund withdrawals during difficult markets so equities can remain invested for long-term recovery. Third, keep a separate cash reserve for unexpected expenses so the ladder can perform its intended role without disruption.

The most common mistake is waiting until after a market correction to create the ladder. By that point, the stock sales needed to fund it may already have locked in losses. A Treasury ladder is not a recovery tool; it is a prevention tool. Its value comes from being available before sequence-of-returns risk appears, not after.