Your retirement year and how sequence risk has played out so far

[Major Tom]

According to a calculator, the annualized S&P 500 return from January 2000 to September 2017 is only 1.076%. It would be 2.977% with dividends reinvested. So valuation does matter. When you retire does matter. Money should be discounted when the valuation is high.

2.97% real return doesn't sound too bad to me. I am financially simple, so excuse me if I'm missing the point, but the problem I have with these reports of supposedly low returns between selected dates is that very few of us put all of our money into the market on one date and then withdraw it all on one (different) date. Rather, we DCA into the market over many years, and do the same in reverse when retired, hopefully also over many years.

 

[flintnational]

Sequence of return risk and a 30% market decline

We retired in 2013/14. Between the investment growth since retirement and our asset allocation (70/30), a 30% market decline would put our investments below our starting retirement number by only about 10%. We would be at a 4% WR. I guess this is where favorable sequence of return risk makes a difference.

FN

 

[Taxman59]

Retired with a WD of 5% of current assets (a significant future inflow is due in about 8 years). In addition to the 5%, paid off the mortgage (2%) several unexpected medical events (1.5%) and the assets are slightly up and the WD is down to 4.5% with $$ left over each month. The sequence of return has allowed me to increase spending on fun (travel) and think about some larger capital items (a camper and the necessary truck, a beach house etc.). Nice thing is, our non-discretionary spending has decreased so that we have a higher net worth and a lower minimum burn rate! So when the next downturn arrives, we will be a good place and can hunker down and ride it out!

 

[audreyh1]

I like that term - minimum burn rate.

Many folks here have seen their retirement assets grow such that there is a big cushion built up to help weather a bad sequence of returns.

Me - I've also been letting unspent income build in short-term funds as our income from these recently fast growing retirement funds has been outpacing our spending. This provides additional cushion as well as funds for one time splurges or gifts as desired.