GLOSSARY · RETIREMENT WITHDRAWALS & EARLY ACCESS

Sequence of returns risk

The risk that poor returns arrive early in retirement, while you are withdrawing, so you sell more of the portfolio at low prices and it never fully recovers. Two retirements with the same average return can end very differently depending on the order of the years.

Also called: sequence risk, order of returns risk

COMPUTE IT WITH YOUR NUMBERS

Sequence of returns risk →How much does the order of returns change my outcome?Monte Carlo retirement success →What is the probability my plan survives volatility?

LEARN IT PROPERLY

CHAPTER · RETIREMENT PLANNING FUNDAMENTALS · FOUNDATIONSTurning Savings into Income CHAPTER · THE LONG GAME: GREEN CARD, RETIREMENT OR LEAVING · DEEP DIVERetiring Early When You May Not Stay QUICK ANSWERWhat is the 4% rule?The 4% rule says that if you withdraw 4% of your portfolio in the first year of retirement and raise that amount with inflation each year, your money lasted at least 30 years in every period of US market history that its author tested from 1926. It is a finding about the past, built for 30-year retirements, not a guarantee.

SOURCES

Determining Withdrawal Rates Using Historical Data. Bengen, Journal of Financial Planning, 1994.

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