The Cash Wedge: Cash to Live On While the Market Recovers

You've stopped putting money in and started taking it out. The cash wedge is the part of your retirement savings you keep out of the market on purpose. It's enough, sitting in savings and in short guaranteed investment certificates, or GICs, to cover what your investments have to pay you for the next year or two, sometimes three. In a year the market falls, you live on the wedge and sell nothing. In a year it rises, you sell a little and fill the wedge back up. How big yours needs to be comes down to how much of what you spend your investments have to supply, and whether that money is inside a RRIF. That's short for registered retirement income fund, and once you've moved into one, a set amount has to come out each year whatever the market did.

Key takeaways

• Your cash wedge is one to three years of the money your investments have to pay you, held as cash or short GICs, so a bad year can't force you to sell.
• Your RRIF minimum is worked out on what you had on January 1, and a fall after that date doesn't shrink it. That's the Canadian part, and it's why you'd hold the cash.
• The last two big falls on the Canadian stock market took under a year and more than three years to recover. You're sizing your wedge to sit out a stretch like that.
• You spend your wedge in a down year and you refill it in an up year. Skip the refill, and your next fall lands on an empty wedge.

What a cash wedge is, and what it isn't

Think of your retirement savings as two pieces. The big piece stays invested, because you may be drawing on it for twenty or thirty years and it has to keep growing. The small piece is your wedge. It holds the money you're going to spend soon, in a form that can't fall, so a savings account, or GICs that mature inside a year or two. Your monthly income comes out of the wedge, not out of your investments.

It isn't your emergency fund. Your emergency fund is for a surprise, a roof or a transmission. Your wedge is for your ordinary spending in a year you'd rather not sell anything. Plenty of retirees keep both, in separate places, and sizing the first one is its own subject, covered in how big an emergency fund should be.

You'll also see the same idea called a bucket strategy. That version splits your money into three or more layers, cash first, then bonds and GICs, then stocks for the long run. Your wedge is that first layer. It stops you selling when the market's down, and whether you carve the rest into more layers is up to you.

The name itself is Canadian. Daryl Diamond, a Canadian retirement author, coined it for his own design, which is a year of your spending in cash and two more years in one- and two-year GICs that roll into the cash as they mature.¹⁰

And your wedge isn't an account of its own. It's the cash portion of whichever account holds it, and you can keep it inside your RRIF, in an ordinary savings account at your bank, or inside your TFSA, short for tax-free savings account. Where you keep it changes how the interest is taxed and whether spending it adds to your income. One part of it has a fixed address, though. Your RRIF minimum has to be paid out of the RRIF itself, so the cash that covers the minimum has to sit inside the RRIF.¹ A wedge in your TFSA or your savings account covers what you spend beyond it.

Why a bad year costs more once you're taking money out

While you were saving, a fall in the market was a discount, because your next contribution bought more units. Once you're drawing, a fall is a bigger bite instead. To come up with the same dollars you have to sell more units, and you don't get those units back when prices recover. That's why a fall in your first years of drawing costs you more than the same fall later, which is the whole of sequence-of-returns risk.

In Canada there's a rule that makes it sharper for you. Once you're drawing from a RRIF, the least you must take out each year is a set percentage of what your fund was worth when the year began.¹ A fall in March doesn't change your figure. You're allowed to take more than that minimum, and you're not allowed to take less.² So the year the market drops is the year you're required to sell, at the bottom, unless the money you need is already sitting in cash inside the RRIF.

Put a round number on it. Say your RRIF is worth $600,000 when January starts, and you're 71. Your minimum that year is 5.28%, which is $31,680.³ Now say the market falls 30% and your RRIF is worth $420,000. Your $31,680 still has to come out. It's now 7.5% of what you've got left. You'd be selling more units than you'd planned to, at prices 30% lower. Those are illustrative figures, but the percentage and the January 1 rule are real.

That rule is why, in March 2020, with markets falling, the federal government cut every RRIF minimum by a quarter for that year.⁴ The cut was written for 2020 and for 2020 only, so you can't plan around it.⁵ What you can plan around is where the money you'll need next year is sitting on the day the market falls. The full table of percentages by your age, and what you can still decide once you're in a RRIF, is in the RRIF minimum withdrawals guide.

How many years of cash should the wedge hold?

Most wedges hold one to three years of the money your investments have to supply. Not three years of everything you spend. Three years of the gap you're left with after CPP, which is the Canada Pension Plan, OAS, which is Old Age Security, plus whatever workplace pension you have, have all landed. Say, to keep the numbers round, you spend $50,000 a year and $20,000 of it arrives as government and pension cheques, you size the wedge off the other $30,000, so a two-year wedge is $60,000 and a three-year wedge is $90,000.

You size it in years rather than as a percentage because you're asking it to outlast a bad patch, so you'd want to know how long a bad patch has actually lasted here. If you'd retired at the end of 2007, you'd have watched the Canadian market's main index go from 13,833 to 8,988 by the end of 2008, a fall of 35%. From its highest month-end reading, May 2008, to its lowest, February 2009, it dropped almost 45%. You'd have waited until February 2011 for a month to end back above your starting point, more than three years, and until June 2014 for it to pass that May 2008 level, roughly six years. Had you retired in January 2020 instead, you'd have seen almost 23% come off by March and the whole fall recovered by December.⁶ Those readings count prices only. They leave out the dividends you'd have been paid along the way, which would have shortened your wait somewhat.

Sizing yours in one pass. Begin with one year of the money your investments have to pay you. Then add a year for every line that fits you:

• Most of that money comes out of your RRIF, where the minimum forces you to sell.
• You've no workplace pension, or a small one.
• You've been retired less than five years, or you're about to be.
• A falling balance would keep you awake, and you'd rather pay a little for sleep than squeeze out the last bit of return.

Two of those and you're at three years, and three is where most people stop. None of them, and one year is where a lot of people with a solid pension stop.

A wedge isn't free, and you'd want the price up front. Money you keep in a savings account earns whatever savings accounts pay that year, not what the market did. The Bank of Canada tries to keep prices rising about 2% a year, so cash that earns less than that buys you a little less each year you hold it.⁷ Three years of your spending held back is money of yours that isn't growing. You pay that to avoid ever having to sell in a bad year. The more a forced sale would hurt you, the more that price is worth paying.

If three years of your spending sitting in cash sounds like a lot of money doing nothing, that's because it is a lot of money. It's also the part of your money you'd planned to spend first anyway. You're not giving up growth on it for thirty years, only for the year or two before you spend it.

How the wedge works from one year to the next

There are two rules, and you only ever use one of them in a given year. In a year the market's up, you sell enough of your investments to top the wedge back up to full. In a year the market's down, you spend from the wedge and sell nothing. When the year comes out flat, most people refill part of it and leave the rest.

If your wedge holds two years and the bad patch lasts three, you'll be selling in year three at whatever the price is by then, but you bought yourself two full years of not doing that, and in both 2008 and 2020 the lowest month-end came inside the first two years. The 2008 recovery took longer than that, which is why plenty of people stop at three years rather than two.

Here's what it looks like with round numbers. You have $600,000, you're taking $30,000 out of it a year, and you take the money once, at year end. The market falls 30%, then rises 20%, then 15%. To keep the arithmetic honest, your cash in the wedge earns nothing in this example. With no wedge, you sell $30,000 of investments every year, including the year they're down 30%. With a two-year wedge, you hold $60,000 in cash and keep $540,000 invested. You spend the wedge in years one and two, and you sell in year three.

Illustrative. $30,000 withdrawn at year end, each year; the wedge earns nothing; not a market history and not a forecast.

Three years on, the wedge has left you $17,940 ahead, because the $30,000 you'd otherwise have sold at the bottom stayed invested for the recovery. Now the honest flip side. Run the same first year with the market up 10% instead of down 30%. With no wedge you finish the year at $630,000. With the wedge you finish at $624,000, because $60,000 of your money missed the 10%. So the wedge costs you $6,000 in a good year, less whatever your savings account paid you. Which of those two years you'll get first, nobody can tell you in advance. In this example the wedge saves you $17,940 across the bad run and costs you $6,000 in the good year.

Inside a RRIF, it's simpler than it sounds. Your RRIF can hold a savings deposit and GICs alongside your funds, so your wedge is the cash portion of the plan, not a withdrawal from it. Each year's minimum is paid to you out of that cash, and you sell nothing. When you refill the wedge in a good year, you're moving money from your investments into cash inside the plan. Nothing leaves the RRIF and nothing is paid to you, and what that cash earns while it sits there isn't taxed either. Your tax arrives on the way out, on whatever the RRIF pays you.¹¹

Where the wedge sits: inside your RRIF, in a TFSA, or in savings

Wherever you keep it, your wedge is deposits, not investments, and that's what decides what protects it. At a bank that belongs to CDIC, short for Canada Deposit Insurance Corporation, each category of your deposits is insured separately, up to $100,000 including interest, and the deposits you hold inside a RRIF count as their own category, separate from the accounts in your own name at the same bank.⁸ Savings deposits and GICs are covered. Mutual funds, stocks, bonds and exchange-traded funds, or ETFs, aren't, so a bond fund you're holding as your safe money carries none of that protection, and its price moves, which is the other reason it isn't a wedge.

Beyond the part that covers your RRIF minimum, the wedge can sit wherever suits you. Each place costs you something different, and a few things about your own situation change how big it needs to be.

• Inside your RRIF. This is where most of the pressure on you comes from, so it's where many people keep most of the wedge, as a savings deposit and short GICs sitting beside the funds. Your minimum is paid out of that cash, and you sell nothing.
• In a TFSA. Money you take out of your TFSA adds nothing to your income, and it has no effect on your OAS, the Guaranteed Income Supplement or Employment Insurance.⁹ So a TFSA wedge covers the spending beyond your minimum without pushing your income up in a bad year. If you're weighing which account to draw from in a given year, that's a bigger question than the wedge, and it has its own guide, which account to take money from first.
• In an ordinary savings account. The simplest place, and the trade runs the other way from your RRIF. Inside the RRIF, what your wedge earns isn't taxed, and you're taxed on what comes out. Outside it, you pay tax on the interest each year, and nothing is taxed again when you spend it.¹¹ This suits a small wedge, or the part of yours you'll spend in the next few months.
• A pension, CPP and OAS mean you hold less. The more of your spending arrives as a cheque that doesn't depend on the market, the less your wedge has to cover. If you have a full workplace pension, you may hold a few months rather than years. An annuity does the same thing for part of your savings, and the trade-offs are in the annuities guide.
• Your province changes nothing about the minimum. The percentages are the same wherever in Canada you live.³ What differs by province is the tax you pay on the income once it's out.

If your RRIF supplies most of your income, you're in the group that mostly lands on two to three years, because the minimum leaves you no say in whether the money comes out. If you've a solid pension and a small RRIF, you're in the group that mostly holds a year or less, because your pension already does what the wedge does.

Your RRIF carrier works out your minimum each January and tells you the figure. Put that number next to your CPP, OAS and pension amounts. The gap between those cheques and what you actually spend is the number your wedge has to cover, and it's on your own statements.

What your own minimum comes to

Curious what your own RRIF minimum would be at your age and balance? Run your own numbers. The figure it gives you is the least that has to come out in a year you'd rather not sell, which makes it the least your wedge has to hold.

What breaks a wedge

Five things go wrong with a wedge, and you can head off every one of them.

• You spend it and never refill it. If you live on it through 2008 and never top it up while prices are climbing, the next fall lands on an empty wedge, and you're selling at the bottom after all.
• You lock it all up. If you put the whole wedge in five-year GICs, it may pay you more, but it isn't cash this year. Only the part that matures within the year counts as your wedge. The rest is an investment with a fixed rate.
• You hold too much for too long. Ten years of your spending in cash is a portfolio that can't grow.
• You count it twice. If your emergency fund and your wedge are the same money, one of the two jobs isn't covered when both come up at once.
• You sell to refill in a down year. Refilling is for the good years. If your wedge runs dry before the market recovers, you're back to selling low, which is the thing it existed to prevent. That's the case for one more year in it than feels comfortable.

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Common questions

Is a cash wedge the same as a bucket strategy?+

Same idea, fewer layers. A bucket strategy splits your money into cash first, then bonds and GICs, then stocks for the long run. Your cash wedge is that first layer. It's one to three years of the income you need from your investments, so you don't have to sell in a bad year. If you've got that much set aside in cash, you're running a wedge, and whether you split the rest into more layers is up to you.

Can I hold the cash wedge inside my RRIF?+

Yes, and the part that covers your minimum has to be there, because your minimum is paid out of the RRIF itself. Your RRIF can hold a savings deposit and GICs alongside your funds, so you're paid from that cash and you don't sell anything. If your bank belongs to CDIC, the deposits you hold in a RRIF are insured as their own category, up to $100,000 including interest.

Does the RRIF minimum still have to come out if the market crashes?+

Yes. Yours is worked out on what your RRIF was worth at the start of the year, and a fall after that doesn't reduce it. The federal government cut every minimum by a quarter in 2020, but that was for 2020 only, so you can't count on it happening again. Keep the cash inside your RRIF and you can pay your minimum in a bad year without selling at the bottom.

How is the cash wedge different from an emergency fund?+

Different job. Your emergency fund covers a surprise, like a car repair or a roof. Your wedge covers your ordinary spending in a year you'd rather not sell. Most retirees who run a wedge keep an emergency fund as well, in its own account, so you don't reach for one and find you've already spent it on the other.

Should the wedge be in a savings account or in GICs?+

Usually both. The year you're spending now sits where you can reach it, in your savings account. Your second and third years often sit in one- and two-year GICs, which mature into that savings account as you need them. A five-year GIC isn't part of your wedge until it's within a year of maturing.

What if I have a workplace pension?+

Then your investments have less to cover, and the wedge gets smaller. It's sized off the gap between your pension, CPP and OAS and what you spend. Someone whose pension covers most of their spending often holds a few months in cash rather than years.

Further reading

• Your Retirement Income Blueprintby Daryl Diamond🍁 Canadian

  You'd pick this one up if you want the whole drawdown picture and not just your wedge. It's the Canadian book on turning your savings into a retirement income, and its author is the one who named the cash wedge.

Sources

1. CRAMinimum amount from a RRIF: the fair market value of the property held in the RRIF at the start of the year, multiplied by a prescribed factor. Accessed 2026-09-04.
2. CRAReceiving income from a RRIF: a yearly minimum is paid starting the year after the RRIF is set up; more can be withdrawn, but not less than the minimum. Accessed 2026-09-04.
3. CRAChart of prescribed factors: 0.0528 at age 71, in the column for all other RRIFs. Accessed 2026-09-04.
4. Department of Finance CanadaCanada's COVID-19 Economic Response Plan, March 18, 2020: required minimum withdrawals from RRIFs reduced by 25% for 2020. Accessed 2026-09-04.
5. CRARRIF minimum withdrawal reduced for 2020: the 25% reduction applies to the entire minimum amount for 2020. Accessed 2026-09-04.
6. Statistics CanadaTable 10-10-0125-01, S&P/TSX Composite index, month-end close (price index): December 2007 13,833.06; May 2008 14,714.73; December 2008 8,987.70; February 2009 8,123.02; February 2011 14,136.50; June 2014 15,146.01; January 2020 17,318.49; March 2020 13,378.75; December 2020 17,433.36. Accessed 2026-09-04.
7. Bank of CanadaMonetary policy: the inflation-control target is the 2% midpoint of a 1% to 3% range, renewed in 2021 until December 31, 2026. Accessed 2026-09-04.
8. CDICWhat's covered: deposits held in a RRIF are a separate coverage category, each category insured up to $100,000 including principal and interest; GICs and other term deposits are eligible, mutual funds, stocks, bonds and ETFs are not. Accessed 2026-09-04.
9. CRAWhat is a TFSA: withdrawals are tax-free, and TFSAs have no effect on Old Age Security, the Guaranteed Income Supplement or Employment Insurance. Accessed 2026-09-04.
10. CRARegistered Retirement Income Fund (RRIF): earnings in a RRIF are tax-free, and amounts paid out of a RRIF are taxable on receipt. Accessed 2026-09-04.
11. Diamond RetirementThe Cash Wedge Strategy: where the term comes from, and the original design of a year in cash and two more in short GICs. Attribution only; no figure is taken from it. Accessed 2026-09-04.

Educational, not financial advice. Figures verified against primary sources on the date shown.

See it in a story: "The Question That Keeps Her Up," where Joanne finds out that taking money out is a different skill from putting it in. The reason your first years matter so much is its own subject, sequence-of-returns risk. Or browse the whole retirement hub.