The biggest risk to retirement savings is a down year in the stock market within the first 3-4 years of being retired. I believe I read that on a web site (like T Rowe Price). My plan is to hedge this risk with cash.

Issue 1: determine income needed. I like to use 80k as an example.

Issue 2: total porfolio size needs to allow for 4% withdraws. 4% is the most common withdraw percentage used at websites like Vanguard and T Rowe Price. 80/4%=$2 M saved.

Issue 3: Hedge against a down market by putting 7 years in cash instruments. CDs, money markets, I-bonds, bond funds.

7*80k=560k. Meaning I am suggesing 560k of the $2M be put in cash (25% CASH). If a portion of this cash allocation can come from money outside the 401k/Roth IRA accounts, this improves the situation. The remaining $1.5 M is invested in equities (so allocation is about 75% equity and 25% cash/bond)

This is done in the year prior to retiring.

80k in a 1 yr CD (this is next year's income)
80k in a 2 yr CD (this is year two's income)
80k in a 3 yr CD (this is year 3's income)
Put 240k in I bonds. The biggest risk to cash investments is inflation. If inflation hits in next 3 years, you want to hedge this risk with I bonds (or other inflation indexed securities).

The last 80k is flexible. A bond fund, dividend paying stocks or Real estate is my suggestion.

Each year take 1/3 of the I Bonds and convert to a 3 yr CD. This is the income you will spend 3 years later. This system is a 3 yr CD ladder with 6 yrs worth of cash and 7 yrs worth of conservative investments.

Each year take the same amount out of 1.5M invested in market and put into I-bonds.

This automatically increases withdraws in line with inflation (The I-bonds calculate this for you).

The 1.5 M invested needs to generate a 5.3% return to create 80k. It is possible the 1.5M could sustain itself and grow the next 10 years (meaning 1.5 M could swell back to ~$2 M) depending on the market.

The rule I plan to follow is only withdraw 80k in an up year. The next 6 years income is already established. If account increases 8%, 5.3% is put to cash and the other 2.7% is left invested in the market.

Another issue to recognize is as cash is spent down, your risk is increasing (75% equity/25% cash in year 1 might become 80% equity/20% cash by year 3,5 or 7).

To hedge this risk, recognize any of the following:

6 years income was put in cash. That 7th yr is flexible depending on risks investor wants to take, tax law (maybe something presents itself to you), and by yr 5, it's clear to me that will need to be in cash, but maybe yrs 1-4 generate enough dividends to supplement income another way.

Allocating the retirement equity positions will be the next subject.