Sequence of Returns Risk
The danger that a market downturn early in retirement does outsized damage to how long savings last.
Two retirees can experience the exact same average return over 30 years and end up in very different places, depending on the order those returns arrived in. A market crash in the first few years of retirement — while withdrawals are being made from a shrinking balance — does far more lasting damage than the same crash arriving later, after years of growth built a cushion.
Worked Example
Retiring right before a market downturn and withdrawing income from a portfolio that's already down can permanently impair how long the money lasts, even if the following 25 years average out to a healthy return.
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