035 | Sequence of Return Risk | Early Retirement Now

035 | In today's conversation with Big Ern from Early Retirement Now we discuss safe withdrawal rates, sequence of returns risk and much more.

In Today’s Podcast we cover: A wide ranging discussion with Big ERN from Early Retirement Now on sequence of return risk and safe withdrawal rates

This is Big Ern’s first podcast! And a thank you to him for helping with Paul’s case study Ern’s thoughts on social security Ern’s origin story and his thoughts on early retirement He had a student loan that he invested since he went to college for free. So he ended up with a positive net worth after graduation Why do we need to be concerned with sequence of return risk?

Ern says that sequence of returns risk is the “reason why people run out of money in retirement” from getting unlucky with low returns in the first 5-10 years What are “real returns”? Adjusted for inflation

The years to worry about having poor returns are the first 5 to 10 years and it has to be prolonged and significant Hypothetical example of the 4% rule and what Ern thinks about it

Resources to game out your chances of success Example of sequence of returns risk for an early retiree who is withdrawing money from the portfolio How sequence of return risk impacts the saver and buy-and-hold investor If you’re a saver during downturns, you benefit significantly

Buy and hold investors should not be impacted as long as they didn’t sell during the downturn Talking through the ‘stubborn’ 4% withdrawals and the impact on success of early retirement. Ern’s look at the real-world ramifications of a market drop and withdrawals ‘If you’re unlucky, you can get screwed twice by sequence of return risk’ example

How to alleviate sequence of return risk Mortgaging your future contributions by buying on margin and front-loading Spreading out your contributions to the equities market over years lowers your sequence of returns risk Ern’s thoughts on front-loading and a description of his investments

Thoughts on Bogle’s prediction that 4% returns can be expected in the near future The “4% rule of thumb” What worries Ern about someone retiring early in the next 10 years? What do you do if you inherit $100,000? Ern’s thoughts on 30x expenses saved up and what his safest safe withdrawal rate would be