Sequence of Returns Risk Analyzer

The chart demonstrates the "Sequence of Returns Risk": the order in which you experience investment returns matters immensely, especially at the start of retirement.

• The Danger Zone: A bear market in the first few years of withdrawal forces you to sell more units at low prices to generate the same income. This permanently damages your portfolio's ability to recover and grow, drastically shortening its lifespan.
• The Power of a Good Start: A bull market at the beginning allows your portfolio to grow substantially even while you withdraw, creating a larger cushion for future volatility.

Buffer Strategies to Mitigate Risk:

1. Cash Bucket: Maintain 1-2 years of living expenses in cash or cash equivalents. During a market downturn, you can draw from this bucket instead of selling your stocks at a loss.
2. Dynamic Withdrawals: Be flexible. In down years, consider reducing your withdrawal amount (e.g., forgoing a vacation or large purchase) to preserve your capital.
3. The "Bucket" Strategy: Divide your portfolio into three buckets: (1) Short-term needs (1-3 years in cash/bonds), (2) Mid-term needs (3-10 years in a balanced fund), and (3) Long-term growth (10+ years in equities). Replenish Bucket 1 from Bucket 2 during good years.