Why does sequence-of-returns risk make the early years of FIRE the most dangerous?
Sequence-of-returns risk is the danger that poor market returns arrive early in retirement, right when your portfolio is largest and you are selling assets to live. Withdrawing during a downturn locks in losses and leaves fewer shares to recover, so two retirees with identical average returns can have wildly different outcomes based purely on the order those returns arrive.
Early retirees face this most acutely because they have decades ahead and no paycheck to lean on. Defenses include keeping a cash or bond buffer to avoid selling stocks in a slump, staying flexible to trim spending after a bad year, using a slightly lower initial withdrawal rate, and sometimes a rising-equity glidepath. It is the main reason a long-horizon FIRE plan should not simply set-and-forget a 4% withdrawal.
Educational disclaimer: All content on WealthSerene.com is for educational purposes only and does not constitute investment advice. Projections and calculations are illustrative — actual results will vary based on market conditions, your specific situation, and many factors outside this tool’s scope. Always consult a qualified financial professional for advice specific to your situation. View full disclosures →