So it looks like we might finally be getting that market correction we’ve all been expecting for a while. Or maybe we just saw a few random days of market flukiness. Or maybe it’s the start of the next recession. Or maybe it’s nothing. Or maybe the world is ending. Probably not, though. But maybe…
Point is: Nobody knows. If anyone can actually see the future, they’re keeping the secret to themselves. And the rest of us just have to make guesses with whatever limited info we have. And the limited info might stress out certain people. Like those who retired recently. Like us.
Because, as you probably know, for folks who save a safe amount for retirement, say somewhere between 20 and 35 times your annual expenses, the chances are overwhelmingly high that you’ll make it to the end of your life with more money than you need, maybe much much more. (Make it rain for those charities in your will, y’all.)
A small fraction, however, won’t be so lucky.
Those who draw the short straw on sequence risk, a.k.a. sequence of returns risk.
Spoiler alert: You can prepare well for sequence risk without extending your early retirement timeline, assuming you are planning on a decently safe withdrawal rate already. And if you’re not concerned about sequence risk with the markets, you might still be wise to consider sequence risk on health care costs. More on all of this farther down.
Quick Refresher On Sequence Risk
We can talk until we’re blue in the face about historical averages for the markets, but virtually no years actually yield average returns. Most years give returns below or above the mean, but they average out, like if you draw a straightish line down the middle of a roller coaster’s arc.
As Dana Anspach