Quit Like a Millionaire: No Gimmicks, Luck, or Trust Fund Required

by Kristy Shen

This is where the Cash Cushion comes in. The Cash Cushion is a pile of cash stored in a high-interest savings account. In the event of a stock market downturn, this cash can be used as a cushion (see what I did there?) so you don’t have to rely on selling assets to pay for your living expenses. It’s a reserve fund. To figure out how big a Cash Cushion we needed, I went back and studied the amount of time it takes for a stock market to recover from a big crash. It turns out the median length is two years. During the Great Depression—the worst-case example—it took about five years after accounting for dividends. After the 2008 crash, it took two. So a five-year Cash Cushion should be sufficient to weather any storm. If someone were trying to retire early with living expenses of $40,000 a year, you’d think the math would be straightforward, if daunting: $40,000 × 5 = $200,000. That’s a big chunk of change to have at the ready. Here’s the good news: you actually need much less than that. This is because of the second part of this system, which I call the Yield Shield.