"The 1995 retiree rode five years of strong bull market returns before the dot-com crash. After roughly 7% average annual growth and $80,000 annual withdrawals, that portfolio grew to approximately $2.4 million."
"The 2000 retiree had no such cushion. The S&P 500 fell 9.03% in 2000, 11.89% in 2001, and 22.10% in 2002. Three consecutive down years, combined with $80,000 in annual withdrawals, left that same $2 million portfolio severely depleted after just three years."
"Sequence of returns risk is the single most dangerous force acting on a large retirement portfolio, operating entirely independently of long-term average return."
"Selling shares at depressed prices to cover living expenses means fewer shares will be available when the market recovers. A portfolio that drops 30% needs to gain back more than it lost just to break even."
Two retirees with identical portfolios and withdrawals experienced vastly different outcomes due to the timing of their retirements. The retiree from 1995 benefited from strong market growth before the dot-com crash, resulting in a portfolio increase to approximately $2.4 million. In contrast, the 2000 retiree faced consecutive market declines, leading to severe depletion of their portfolio. This illustrates the critical impact of sequence of returns risk, which can drastically affect retirement sustainability, especially when withdrawals occur during market downturns.
#retirement-planning #sequence-of-returns-risk #portfolio-management #financial-strategy #market-timing
Read at 24/7 Wall St.
Unable to calculate read time
Collection
[
|
...
]