# Build a Treasury War Chest Before Retirement
The first few years of retirement pack outsized risk. Markets tumble right after you stop working, and you have no paycheck to cushion the blow. A growing number of financial advisors recommend building what they call a "war chest" of short-term Treasury securities before you retire. This buffer strategy addresses a real problem in retirement planning.
Here's the core idea. Instead of keeping your entire portfolio invested in stocks and bonds throughout retirement, retirees should hold one to three years of living expenses in Treasury bills and short-term Treasury notes before they retire. When stocks crash early in retirement, you tap this cash pile instead of selling stocks at depressed prices. You avoid locking in losses when you need the money most.
Short-term Treasuries deliver returns better than savings accounts without the volatility of stocks. A Treasury bill maturing in three months currently yields roughly 5 percent. A one-year Treasury note yields around 5.3 percent. These rates beat high-yield savings accounts at many banks, which hover around 4.5 to 4.8 percent. The difference matters when you're protecting hundreds of thousands of dollars.
The risk you're hedging against has a name in finance: sequence-of-returns risk. If your portfolio drops 30 percent in year one of retirement, you're forced to sell stocks when they're cheap to pay living expenses. That lock-in loss makes recovery harder. Someone retiring in 2008 faced exactly this problem. Markets fell 37 percent that year. Retirees who tapped their war chest survived intact. Those who sold stocks at the bottom suffered permanent damage.
Building this buffer takes discipline before retirement. If you retire at 65 and spend $80,000 per year, you'd build a $240,000 Treasury position over your final working years. That's a significant amount, but it's intentional underinvestment in growth assets during high-earning years, not a loss.
The Treasury ladder strategy works well here. Buy Treasury bills and notes that mature in months 3, 6, 12, 18, 24, and 36. As each one matures, you use it for living expenses. New Treasuries mature as you need them. You're never forced into market timing. This structure removes emotion from withdrawal decisions during downturns.
Not every advisor agrees. Some argue that holding three years in low-yield Treasuries costs you growth potential. Over long bull markets, stocks outpace Treasuries by large margins. The opportunity cost becomes real. Others counter that sleeping through a market crash is worth far more than an extra 2 percent annual return.
The current environment makes this strategy more attractive than usual. Treasury yields have climbed sharply since 2022. Three-year Treasury notes yield over 4.8 percent. That gap between Treasuries and savings accounts has shrunk, but the stability remains priceless for retirees.
If you're within five years of retirement, building a Treasury war chest deserves serious consideration. Talk to a fee-only financial planner about sizing it for your specific spending needs. The cost of bad timing in year one of retirement far exceeds the yield difference between Treasuries and stocks.