The Bond Ladder for Retirement De-Risking
Stagger bond maturities to fund living expenses and protect against sequencing risk.
A Bond Ladder is a portfolio of single bonds with staggered maturity dates. Each year, one 'rung' matures and provides cash; you then either spend it (if retired) or roll it into a new long-dated rung (if still building). Nakisa's specific recipe: take annual living expenses, multiply by three, and build a 3-year ladder starting 5 years before retirement, running it through the first few years of retirement.
The purpose is sequencing risk mitigation. A market crash in the first few years of retirement is uniquely damaging because withdrawals during a drawdown permanently shrink the portfolio's recovery capacity. The ladder gives the retiree 3 years of expenses they can live on while equities recover, instead of being forced to sell stocks at the bottom.
Unlike a bond fund, a ladder gives total certainty: you know which rung pays when, and how much. It is mechanically simple to maintain — a few decisions per year.
- Sequencing risk — not average return — is the binding constraint in early retirement.
- Three years of cash buys time for equities to recover from a normal crash.
- Each rung of the ladder is a single bond held to maturity, not a fund.
- Build the ladder before you need it; you cannot build it during a crash.
- Stop replenishing rungs once you are deep enough into retirement that longevity > drawdown risk.
- Calculate annual living expensesBe honest about what you actually spend, including discretionary. This number anchors the entire ladder size.Pro tipUse the last 12 months of bank statements, not your aspirational budget.
- Multiply by three to size the ladderThree years of expenses is Nakisa's chosen buffer — long enough to cover most equity recoveries (2008 took ~7 years; 2020 took months) but small enough not to drag returns.
- Build the ladder 5 years before retirementBuy three single gilts maturing in years 1, 2, and 3 of retirement. Use the broker ticker system (e.g. T26, T27, T28) to pick exact maturities.
- Roll matured rungs into new 3-year giltsWhile still working, when a rung matures, buy a new 3-year gilt to extend the ladder. This is the 'conveyor belt' phase.
- At retirement, spend matured rungsOnce retired, the matured bond funds the year's expenses. Equities continue to grow untouched.Pro tipIf equities are up that year, also sell some equities to refill a future rung; if down, let the ladder carry you.
- Stop replenishing 2 years into retirementOnce the worst sequencing-risk window passes, let the ladder run down and shift back toward equities for longevity.WarningDon't extend the ladder forever — long-run drag on returns becomes the new risk.
Five years before retirement he plans to set up a 3-year ladder using UK gilts, run it through the first two years of retirement, then stop replenishing.
A 2007 retiree drawing from a 100% equity portfolio would have been devastated by 2008-09. With a 3-year ladder, they could have lived off bonds while equities recovered ~7 years later.
Nakisa notes Americans are 'all over' bond ladders, often built with tax-exempt municipal bonds and US Treasuries on Fidelity's automated ladder builder.
Nakisa shared this with his PensionCraft community as his personal retirement plan. His insight came from analysing 'sequencing risk': a crash near retirement shaves years off portfolio longevity, while the same-sized crash at age 90 is irrelevant. The ladder is his answer to the question 'how do I stay 100% equity for life without being forced to sell at the bottom?'