Comments on: Sequence Of Returns Risk – Why You Should Care

By: Joel

Joel — Wed, 09 Dec 2020 18:33:52 +0000

In reply to Anders. I find that as I get older and older, I think about risk a lot more. I am caring less about high returns, and prefer stability :) Cheers Anders!

By: Anders

Anders — Wed, 09 Dec 2020 16:59:01 +0000

AWESOME post. Having Risk in mind might be a boring, but very important matter when desigining your portfolio.

By: Joel

Joel — Tue, 08 Dec 2020 18:22:54 +0000

In reply to Sarah H in Portland. THIS is awesome. Sounds very conservative and you'll be able to sleep like a baby knowing a crash wouldn't effect you if it hits immediately when you retire. Well done and all the best! Love the 3 buckets idea!

By: Sarah H in Portland

Sarah H in Portland — Tue, 08 Dec 2020 18:20:07 +0000

We are approaching retirement very soon in our late 50’s, and we are using a 3 bucket method. We have cash reserves for the first 3-5 years, moderate risk investments for 6-14 years out, and a higher risk portfolio for 15 years and beyond, when we will be collecting Social Security income and subject to RMD’s. For us, we have peace of mind just in case the stock market crashes, it has years to recover before we need to withdraw. Over the years, we will move money from bucket 2 to bucket 1, and from bucket 3 to bucket 2, in order to preserve our capital before we need to withdraw it.

By: Joel

Joel — Tue, 08 Dec 2020 18:13:48 +0000

In reply to youmovies. Yes it's scary! But, its controllable. As long as we plan ahead and play safe. :) Have a great week!

By: youmovies

youmovies — Tue, 08 Dec 2020 16:23:26 +0000

Wow, this was eye-opening, Joel! Thank you for outlining the math behind sequence risk. It’s scary to see the negative side of compound interest when withdrawing during retirement. Best plan of action like you said is just to save a little bit more in preparation. Great post – keep up the great work!

By: Joel

Joel — Mon, 07 Dec 2020 22:28:22 +0000

In reply to GJ. In general, I believe people plan to withdraw 4% the first year ($4,000), then that amount + inflation the next year, and keep increasing with inflation each year thereafter. So I think 4k would be the lowest, and it would increase every year after. Again, this is just a rule of thumb. Life throws unexpected changes at you each year with big expenses and/or big savings.

By: GJ

GJ — Mon, 07 Dec 2020 20:47:39 +0000

In reply to Joel. Ah! I was looking at that graph as removing a flat amount ($4k), not as removing 4%. I assumed using the 4% method that the actual dollar amount would change as the total balance fluctuated, but I admitted haven’t looked too far into it as retirement is pretty far out on my timeline.

By: Joel

Joel — Mon, 07 Dec 2020 18:14:14 +0000

In reply to GJ.

Hey GJ! In a way, the first example already shows the 4% rule… I used $100k as the starting out point, and $4,000 withdrawls each year for both sequences. A better, more thorough calculator I found is here (https://www.jlinefinancial.com/sequence-of-returns/) where you can plug in your custom numbers, and it’s based on real historic returns. If you keep hitting the “randomize” button, it will keep mixing the sequences and showing how the results vary. :)

By: Joel

Joel — Mon, 07 Dec 2020 18:09:30 +0000

In reply to BruinBones.

Cheers! Thanks for saying this – sometimes I feel like I’m writing the same ‘ol crap that’s already been written about 100 times. But then I remember that a different perspective can help trigger different thoughts and ways to look at things for others. Glad this helped. Cheers mate! And congrats on FIRE!!!!!