How Does the Cash Wedge AI Strategy Work

The cash wedge is an optional retirement income strategy designed to reduce sequence of returns risk in the early years of retirement. It temporarily increases the cash allocation of a portfolio before retirement and draws it down during the early retirement years.

This article explains how the strategy works, what to watch for, and how to interpret its impact using the planning platform.

What Is the Cash Wedge?

The cash wedge strategy involves:

  • Increasing the cash portion of a portfolio in the five to ten years leading up to retirement.
  • Drawing down that cash in the first five to ten years of retirement instead of selling equities when markets may be down.
  • Reducing equity exposure (not fixed income) to make room for cash.
  • Acting as a psychological buffer during uncertain market periods.

The platform includes pre-built options such as:

  • A 10 percent cash wedge, built up over five years (e.g., 2, 4, 6, 8, and 10 percent).
  • A 5 percent cash wedge, also built up over five years.

How It Works in the Platform

When enabled:

  • The platform automatically reallocates portfolio assets, reducing equities to build up cash.
  • The build-up occurs in the five years before retirement.
  • The drawdown occurs in the five to ten years after retirement begins.

This isn't a permanent shift — the allocation returns to a more typical mix after the drawdown period.

Where to View the Impact

  • Check the asset allocation columns in the projections table to see how cash levels increase before retirement.
  • Use the net return column to observe how the change in asset mix (more cash, less equity) affects total returns.
  • Look at the success rate and estate value metrics to evaluate trade-offs.

Trade-Offs to Consider

  • Cash typically earns less than equities, so overall returns may be lower.
  • Lower returns can reduce the final estate value.
  • There may be a small improvement in plan success rate due to reduced early-retirement risk.
  • The strategy tightens the range of potential outcomes — fewer extreme highs or lows in the early years.

This means:

  • Less chance of poor outcomes early on.
  • But also lower long-term growth potential, which could increase longevity or inflation risk later.

Should You Use It?

The cash wedge is often more of a psychological tool than a purely performance-enhancing one. It can provide peace of mind by smoothing early-retirement volatility.

Things to consider:

  • Are you comfortable trading some long-term growth for early stability?
  • Does the slight improvement in success rate justify the potential reduction in estate value?
  • Are you particularly concerned about the first 5–10 years of retirement?

You can easily enable and disable cash wedge strategies in the platform to evaluate their effects and compare outcomes. We recommend you consult with a financial advisor to fully understand the implications of this decision.