Cash Wedge vs. 60/40 in Retirement: We Stress-Tested Both With 10,000 Simulations

Calm Wealth Research Brief — June 2026. A Monte Carlo stress test of two common retirement income strategies.

Retirees drawing income from their portfolios typically choose between two structures: a traditional balanced portfolio (60% equities, 40% bonds, rebalanced annually) or a cash wedge — two to five years of spending held in cash and GICs, with the remainder invested in equities. The wedge is often marketed as the safer option.

Our simulations show that is not quite true.

Across 10,000 Monte Carlo trials of a $1 million portfolio funding $45,000 per year of inflation-indexed income over 30 years, the two strategies produced nearly identical odds of the money lasting. The wedge produced substantially higher median ending wealth — because it carries far more equity exposure. But in the scenario it is supposedly built for, a deep market crash at the start of retirement, the 60/40 actually survived more often. The wedge earned its keep in only one stress scenario: a sustained inflation shock.

The most important finding was not about either portfolio. Adding a simple spending guardrail — a temporary 10% cut after a bad year when the withdrawal rate drifts too high — lifted survival in the crash scenario from roughly 15% to over 90%. Flexibility in spending matters far more than how the assets are arranged.

The Two Strategies

60/40 balanced: 60% equities, 40% bonds, rebalanced once per year. Withdrawals come from the whole portfolio.

Cash wedge: Three years of withdrawals ($135,000) held in cash and GICs, the remaining $865,000 in equities. Spending comes from the cash sleeve first. The wedge is refilled from equities only after a positive equity year, so the retiree is never forced to sell stocks in a down year while cash remains.

We also tested a five-year wedge and a hybrid (three-year wedge with a 70/30 balanced core) as variations.

Method and Assumptions

10,000 Monte Carlo simulations. $1,000,000 starting portfolio, $45,000 first-year withdrawal indexed to inflation (a 4.5% initial rate), 30-year horizon. Nominal return assumptions: equities 7.4% (16% volatility), bonds 3.8% (7%), cash 2.8%, inflation 2.5%, equity-bond correlation 0.2.

These assumptions sit between long-run historical averages and FP Canada's more conservative projection guidelines; we stress test the conservative case separately. Taxes and fees are excluded, so the results compare structure, not products.

Base Case Results

Success rate is the share of trials where the money lasted the full 30 years. Median ending is the median portfolio value left at the end.

• 60/40 balanced — 60% success rate, $339,000 median ending wealth, 60% effective equity exposure
• 3-year wedge + equities — 61% success rate, $549,000 median ending wealth, ~87% effective equity exposure
• 5-year wedge + equities — 57% success rate, $271,000 median ending wealth, ~78% effective equity exposure
• 3-year wedge + 70/30 core — 59% success rate, $284,000 median ending wealth, ~61% effective equity exposure

Success rates are essentially tied. The wedge's higher median ending wealth comes from one source: more money in equities.

Note that a 4.5% indexed withdrawal under these assumptions is aggressive for any structure — success rates rise to roughly 70 to 75% at a 4% withdrawal rate.

Stress Test Results

We re-ran the simulations under five stress scenarios. Success rates (portfolio lasts the full horizon):

Conservative returns (FP Canada-style):

• 60/40: 54% — 3-yr wedge: 54% — 5-yr wedge: 50% — Hybrid: 52%

Crash at retirement (-30%, then -10%):

• 60/40: 15% — 3-yr wedge: 9% — 5-yr wedge: 6% — Hybrid: 11%

Inflation shock (5% for 10 years):

• 60/40: 26% — 3-yr wedge: 42% — 5-yr wedge: 37% — Hybrid: 28%

Longevity (35-year horizon):

• 60/40: 46% — 3-yr wedge: 51% — 5-yr wedge: 46% — Hybrid: 45%

Crash at retirement + spending guardrails (60/40):

• 93%

Three findings stand out.

1. The wedge fails its own stress test

Three years of cash does not outlast a multi-year bear market. Once the wedge drains, the retiree is selling from a 100% equity sleeve at depressed prices — and that sleeve fell further than a balanced portfolio did. Bonds cushioned the crash better than the cash buffer.

2. The wedge wins the inflation war

When inflation runs at 5% and bonds lose money in real terms, the wedge's heavy equity weighting is the only thing keeping pace with rising withdrawals. Success was 42% versus 26% for the 60/40. The same growth advantage helps modestly over a 35-year horizon.

3. Guardrails beat both structures

A modest, temporary spending cut after bad years took the worst-case crash scenario from a 15% success rate to 93%. No asset structure came close to that improvement. The willingness to flex spending is the single most powerful risk control a retiree has.

What This Means for Your Plan

The cash wedge is not a safer version of the 60/40. It is a more aggressive portfolio with a psychological buffer attached.

That buffer has real value: retirees who can see three years of spending sitting in GICs are far less likely to panic-sell equities in a downturn, and no simulation captures the cost of abandoning a strategy at the bottom. But the protection is behavioral, not mathematical.

Our view: choose the structure based on the retiree, not the spreadsheet. A client prone to anxiety in down markets may genuinely do better with a wedge, because the strategy they can stick with beats the strategy they abandon. A client comfortable with statements that dip should keep the simpler balanced portfolio.

In either case:

• Build in spending guardrails from day one. A pre-agreed, temporary cut after bad years did more for plan survival than any portfolio structure we tested.
• Keep the initial withdrawal rate at or below 4% where possible. At 4.5%, every structure we tested struggled.
• Revisit the plan annually. Those three decisions move the odds far more than the wedge debate does.

If you want to see how your own retirement income plan holds up under these stress scenarios — your numbers, your spending, your timeline — book a free assessment and we'll run it together.

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Important information: This brief is for education only and is not investment advice. Simulations use assumed returns and volatility; actual results will differ, and projections are not guarantees. Figures exclude taxes, fees, and product costs. Speak with your advisor before changing your retirement income strategy. Prepared by Marc Pineault, Calm Wealth, London, Ontario.