Buying the Years You Cannot Afford to Sell Into
The most dangerous period in a retirement is the first decade, because a bad market early forces you to sell assets cheaply to fund spending and the portfolio never recovers the ground. A bond ladder addresses that directly. Instead of managing the risk with an allocation percentage, you buy specific bonds that mature in specific years, so the money for those years is already there and no market can take it away.
- The structure:: One bond maturing each year for as many years as you want covered. Each matures at par, funds that year, and the equity portfolio is left alone.
- Size it to the gap:: Not to your whole spending — to the gap between spending and guaranteed income from Social Security and pensions. That gap is usually far smaller than the total.
- Individual bonds, not a fund:: A bond held to maturity returns par on a known date. A bond fund has no maturity date and can be worth less exactly when you need it.
- TIPS make it a real ladder:: A nominal ladder guarantees dollars. A TIPS ladder guarantees purchasing power, which is what spending actually requires.
Where the AI summary above gets this wrong
"Hold bonds in retirement for stability — a 60/40 portfolio rebalanced annually will see you through."
That's surface-true. Here's what it misses:
- An allocation is not a maturity date — A 40% bond allocation held through a fund tells you what proportion you own, not what any of it will be worth on the day you need it. A ladder answers a different question: this specific bond matures at par in 2031 and funds 2031. That certainty is the entire point and an allocation cannot provide it.
- The risk is concentrated in the first decade — Sequence risk is not evenly spread across retirement. A poor market in the first ten years does lasting damage; the same market twenty years in does much less. That argues for protecting a defined number of early years specifically rather than holding a constant bond percentage forever.
- A bond fund can fall when you need it most — Funds have no maturity. In a rising-rate year a bond fund's value falls and there is no date at which it returns to par, so selling for income crystallises the loss. An individual bond held to maturity pays par regardless of what happened to its price in between.
01 What a ladder is for
The risk a ladder addresses is specific. Sequence-of-returns risk is the danger that poor returns arrive early, while you are withdrawing, forcing sales at depressed prices that the portfolio never makes back. The same returns arriving later do far less damage, because there is less withdrawal left to fund from a reduced base.
A ladder converts that risk into a known quantity for a defined period. You buy a bond maturing in each of the next several years, sized to that year's spending gap. When a year arrives, the bond matures at par and funds it. The equity portfolio is not touched, whatever the market has done.
That is a different mechanism from an allocation. Holding 40% in bonds tells you about proportions; a ladder tells you about dates. It is the dates that let you leave equities alone through a bad stretch, which is the behaviour that actually protects a portfolio — the mechanism described in sequence risk.
Source: Treasury notes
02 Sizing it against the gap, not the spending
The commonest error is building a ladder against total spending. What needs covering is the gap: spending less the guaranteed income already arriving from Social Security and any pension.
A household spending $45,000 with $30,000 of guaranteed income needs $15,000 a year from the portfolio. An eight-year ladder for that gap is around $120,000 of face value — far less than the $360,000 a naive calculation against total spending would suggest.
How many years to cover is a judgement about how long a bad market might last and how much certainty is worth to you. Five years covers most historical drawdowns; ten covers nearly all of them and costs more in foregone equity return. The right answer depends on how much of your spending is essential rather than discretionary, since discretionary spending can absorb a bad year by simply not happening.
Shows: the face value a ladder needs to cover the gap between guaranteed income and spending, for the number of years you want protected. Ignores: the interest the bonds pay, which reduces what you need, inflation over the ladder's life, and tax on the interest.
Source: Topic no. 403, Interest received
03 Individual bonds, and why the wrapper matters
A ladder requires individual bonds, not a bond fund. The difference is a maturity date. An individual Treasury note held to maturity returns its face value on a known day regardless of what its market price did in the interim. A fund holds a rolling portfolio with no maturity, so its value on the day you sell is whatever the market says.
In a year of rising rates that distinction is the whole argument. The fund falls in value and stays fallen; the individual bond also falls on paper and then pays par anyway. If you are holding bonds specifically so you do not have to sell into a bad market, holding them through a vehicle that can be down when you sell defeats the purpose.
Treasuries are the natural instrument: no credit risk, maturities available at every point out to thirty years, and interest exempt from state and local income tax. Corporate bonds pay more and reintroduce the possibility of a default in exactly the scenario the ladder exists to survive.
Source: Treasury notes
04 Nominal or real
A ladder of ordinary Treasuries guarantees dollars. Over eight or ten years, inflation decides what those dollars buy, and a ladder built to cover $15,000 of spending may deliver meaningfully less purchasing power by its final rungs.
A TIPS ladder guarantees purchasing power instead. The principal adjusts with inflation, so a rung sized to a year's real spending delivers that spending whatever prices have done. For money whose entire job is to fund a known quantity of living costs, that is the more honest match — the argument set out in inflation and retirement.
Two frictions to know about. TIPS produce phantom income: the inflation adjustment is federally taxable in the year it occurs even though no cash arrives until maturity, which argues for holding them in a tax-deferred account. And building either ladder means buying individual securities at auction or on the secondary market, which is more administration than buying a fund — the price of the certainty.
05 When not to build one, and what happens at the end
Two households do not need a ladder. The first is one whose guaranteed income already covers essential spending — if Social Security and a pension pay the bills, no market can force a sale, and the ladder is insuring against something that cannot happen. The second is one whose portfolio is very large relative to spending, where a few years of withdrawals barely register against the balance and the foregone equity return costs more than the certainty is worth.
Between those, the case is strongest for a household drawing a meaningful percentage of a moderate portfolio in its first decade — which is most people retiring before their benefits start.
The question nobody asks until it arrives is what happens when the last rung matures. There are two answers and both are defensible. Rolling the ladder means buying a new far-dated bond each year as a near one matures, keeping the same number of protected years indefinitely. Letting it run down means spending each rung without replacement, so the protection shrinks as you age — which is coherent, because sequence risk genuinely does decline as the remaining withdrawal period shortens. What is not coherent is arriving at year eight without having decided, and rolling by default at whatever rates happen to prevail that week.
Source: Treasury notes
What I like about a ladder is that it changes behaviour rather than just allocation. The reason portfolios fail early in retirement is rarely the market itself — it is the person selling into it, because the money has to come from somewhere and equities are what there is. A ladder removes that pressure by answering the question in advance: 2031 is already funded, so 2031's market is not your problem. The cost is a lower expected return on that slice, and I think it is worth paying for the specific years where being forced to sell would do permanent damage.
FAQ
How large should a bond ladder be?
Size it to the gap between your spending and your guaranteed income, not to total spending. A household spending $45,000 with $30,000 from Social Security and pensions needs $15,000 a year, so an eight-year ladder is around $120,000 of face value.
Why not just use a bond fund?
A fund has no maturity date. An individual bond held to maturity returns par on a known day whatever its price did in between; a fund can be worth less exactly when you need to sell. If the point is not having to sell into a bad market, the maturity date is the feature you are buying.
How many years should the ladder cover?
Five years covers most historical downturns and ten covers nearly all of them, at the cost of more foregone equity return. The more of your spending is essential rather than discretionary, the longer the ladder is worth making.
Should I use TIPS or ordinary Treasuries?
TIPS if the ladder's job is to fund a known quantity of real spending, since they guarantee purchasing power rather than dollars. Note that the inflation adjustment is federally taxable each year even though no cash arrives, so TIPS generally belong in a tax-deferred account.
Sources
Regulator references
- Treasury notes · U.S. Department of the Treasury · 2025Terms and maturities of the securities a ladder is usually built from.Last verified: 2026-09-07
- Treasury Inflation-Protected Securities (TIPS) · U.S. Department of the Treasury · 2025How the inflation adjustment works, and why a real ladder differs from a nominal one.Last verified: 2026-09-07
- Topic no. 403, Interest received · Internal Revenue Service · 2025How the interest a ladder produces is taxed as it is received.Last verified: 2026-09-07
Calculator unit tests · the assertions this page's worked example is checked against, and their last result
Changelog
- 2026-09-07 — initial publish (new format)
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Jordan Reeves
Founder of Talk Through Wealth. A software engineer for over a decade before turning to retirement planning, Jordan built the projection engine after watching family members get fragmented, country-by-country advice that never reconciled. He writes about retirement the way the engine computes it: month-by-month, lifetime-long, and skeptical of any rule of thumb that hasn't been run through the math.