Key Data and Analysis
Cash buffer size: sequence risk protection vs. cash drag for FIRE
| Cash Buffer | Sequence Risk Protection | Annual Cash Drag (4% real return gap) | Best For |
|---|---|---|---|
| 6 months | Minimal — insufficient in extended bear | $0 (negligible amount) | Not recommended for early FIRE |
| 1 year | Moderate — covers mild recessions | $0 on small amount | Acceptable for age 60+ |
| 2 years | Good — covers typical recessions | $960 on $48K buffer | Standard FIRE recommendation |
| 3 years | Strong — covers most bear markets | $1,440 on $72K buffer | Conservative early retirees |
| 5 years | Excessive — limits compounding significantly | $2,400 on $120K buffer | Too conservative for most |
💡The Standard FIRE Recommendation
Most FIRE planning frameworks recommend 2-3 years of expenses in cash or short-term bonds at retirement. On $48,000/year: $96,000-$144,000 in cash. This buffer allows riding out typical recessions without selling stocks at depressed prices.
Deeper Analysis
Buffer adequacy by market scenario
| Market Scenario | 1-Year Buffer | 2-Year Buffer | 3-Year Buffer |
|---|---|---|---|
| Mild recession (-20%, 2-year recovery) | Adequate | Comfortable | Excessive |
| Moderate bear (-35%, 3-year recovery) | Stressful | Adequate | Comfortable |
| Severe bear (-50%, 5-year recovery) | May fail | Stressful | Adequate |
| Great Depression scenario (-86%, 10-year recovery) | Fails | Fails | Insufficient |
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