Reply to Regret Retiring Given Inflation/Market Woes?

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[quote=Anonymous]We were in this position in 2007 and chose to work for another ten years. So glad we did. We are now in a position to ride out this downturn. We actually backed off a bit, work wise, since we didn’t really need to save more, but just covering our expenses while waiting to make withdrawals and letting the market recover was big.

There are articles out there about this — it’s called “sequence of returns.” Basically, the usual math doesn’t work if there is a significant market drop is early in your retirement.

https://www.cnbc.com/2022/01/21/a-lasting-market-downturn-can-be-big-risk-early-in-your-retirement.html

Here’s how a sequence of returns risk can impact your savings: Say a person had retired at the turn of the century with $1 million invested in the S&P and withdrew $40,000 each year, with withdrawals after the first year adjusted 2% for inflation.

In 2020, the remaining balance would have been about $470,000, according to Ben Carlson, director of institutional asset management for Ritholtz Wealth Management, who crunched the numbers for a blog post.

In the above scenario, the portfolio would have been subject to a bear market at the outset of the person’s retirement, when the S&P lost 37% over three years during 2000-2002, but enjoyed a long-running bull market that began in 2009.

It’s not the specific returns over time but the order of those returns that matter.

However, if the order of yearly returns were flipped — the gains posted by the S&P at the end of the 20 years happened first and that early bear market happened last — that same person would have more than $2.3 million after withdrawing the $40,000 or inflation-adjusted amount each year.

“It’s not the specific returns over time but the order of those returns that matter,” Pfau said.[/quote]

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