"A 65-year-old retiring this month faces a financial puzzle: leaving work with $1.3 million saved, but entering retirement when the S&P 500 sits up 13% over the past year and 80% over five years. The market feels extended, inflation remains at 3.2%, and the first few years of retirement withdrawals could determine whether this nest egg lasts 30 years or runs dry at 80."
"This is sequence of returns risk-the single biggest threat to a portfolio at retirement. The timing of market returns matters far more than average returns when you're taking withdrawals. A retiree who started with $1 million in 2000 and withdrew $50,000 annually would have run out of money by 2015 despite the market eventually recovering. Someone who retired in 2010 with the same plan would still have over $1 million today."
"This retiree needs $65,000 annually but can claim Social Security now for $28,800 per year, leaving a $36,200 gap to fill from the portfolio-a 2.8% withdrawal rate. That's conservative and sustainable under normal conditions. But these aren't normal conditions. The portfolio breakdown: $950,000 in a traditional 401(k), $180,000 in a Roth IRA, and $170,000 in taxable accounts. The 70/30 stock-bond allocation was appropriate during accumulation but needs immediate adjustment."
A 65-year-old retiree has $1.3 million across accounts and faces an extended equity market and 3.2% inflation as withdrawals begin. Sequence-of-returns risk can devastate a portfolio when withdrawals start in down years, making early retirement returns far more important than long-term averages. The retiree needs $65,000 annually, can claim $28,800 from Social Security, and faces a $36,200 portfolio gap (about a 2.8% withdrawal rate). The portfolio (70/30 split) totals $950,000 in a traditional 401(k), $180,000 in a Roth IRA, and $170,000 taxable. Advisors commonly recommend cash and bond buckets and considering delayed Social Security to reduce sequence risk.
Read at 24/7 Wall St.
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