Sequence of Returns Risk: Why the 4% Rule Can Still Fail
Two retirees. Identical pots. Identical 4% withdrawals. One ends with millions, the other is broke at 78. The only difference between them is the year they retired.
Year-30 portfolio: two retirees, same average return, opposite sequences
£500k starting pot, £20k drawn each year, same 30-year average return. Only the sequence differs.
Key takeaways
Decumulation is more challenging than accumulation because market volatility can hurt retirement savings when you're selling instead of buying.
Sequence of returns risk is a major threat where the timing of market downturns during retirement can significantly impact financial sustainability.
The 'one more year' mindset can delay retirement, risking the benefits planned for the FIRE number.
It's important to consider state pensions when planning for retirement income.