LUCKY vs UNLUCKY RETIREMENT TIMING

As many of you already know, I like to take luck out of the equation when it comes to retirement investing. By using data and probabilities, you can generate better and more consistent investment results.

However, there is one aspect of retirement investing where luck plays a significant role — the timing of your retirement. The actual month and year you retire can have a major impact on your financial security throughout retirement.

This effect is driven by what’s known as Sequence of Returns Risk. You can control your savings habits and investment strategy, but you have no control over the performance of the stock market in the early years of your retirement.

Your investment returns during the first seven years of retirement have an outsized impact on your overall financial outcomes. Let’s look at an example.

If you retire at age 65 with an account balance of $1.5 million and live to age 90, you should be able to comfortably withdraw about $113,500 per year during retirement, assuming you earn a consistent 7.3% annual return. I use 7.3% because that’s the actual average annual return for the S&P 500 over the past 25 years (excluding dividends).

The problem is that returns are not consistent each year — especially if your portfolio is invested in the stock market.

The table below shows the actual annual returns of the S&P 500 from 2000 through 2024. The straight average of those 25 years was 7.3%. In the last column, I reordered the returns so that the best-performing years came first (2010–2024) and the worst-performing years came last (2000–2009).

YEAR	Actual Returns	Flat Returns	YEAR (Reordered)	Returns (Reordered)
2000	-10.1%	7.3%	2010	12.8%
2001	-13.0%	7.3%	2011	0.0%
2002	-23.4%	7.3%	2012	13.4%
2003	26.4%	7.3%	2013	29.6%
2004	9.0%	7.3%	2014	11.4%
2005	3.0%	7.3%	2015	-0.7%
2006	13.6%	7.3%	2016	9.5%
2007	3.5%	7.3%	2017	19.4%
2008	-38.5%	7.3%	2018	-6.2%
2009	23.5%	7.3%	2019	28.9%
2010	12.8%	7.3%	2020	16.3%
2011	0.0%	7.3%	2021	26.9%
2012	13.4%	7.3%	2022	-19.4%
2013	29.6%	7.3%	2023	24.2%
2014	11.4%	7.3%	2024	23.3%
2015	-0.7%	7.3%	2000	-10.1%
2016	9.5%	7.3%	2001	-13.0%
2017	19.4%	7.3%	2002	-23.4%
2018	-6.2%	7.3%	2003	26.4%
2019	28.9%	7.3%	2004	9.0%
2020	16.3%	7.3%	2005	3.0%
2021	26.9%	7.3%	2006	13.6%
2022	-19.4%	7.3%	2007	3.5%
2023	24.2%	7.3%	2008	-38.5%
2024	23.3%	7.3%	2009	23.5%
Average	7.3%	7.3%	Average	7.3%

Using the same $1.5 million starting balance and the same 7.3% average annual return, we get very different outcomes depending on the order of returns.

If you use the actual returns from 2000–2024, your sustainable annual retirement income drops by about 40%, to roughly $66,000 per year.

That’s a huge difference — a monthly income of $9,500 versus $5,500. This would dramatically affect your lifestyle in retirement.

This example might seem extreme, but it’s very real. Retiring in January 2000 would have been one of the worst times to retire in the past 60–70 years.

Here’s why the timing of your retirement matters so much: In your first seven years of retirement, your account balance is at its highest. Since you’re withdrawing money every year, your balance steadily declines over time. A 10% gain in your early years may add more than $120,000 annually, while a 10% gain in your final years might only add $30,000 to $40,000.

Now, if you retired in January 2010, you were very lucky. The 15 years from 2010 through 2024 were exceptionally strong for the stock market — the S&P 500 averaged over 13% per year before dividends.

To illustrate, if we reverse the sequence — using 2010–2024 returns first and 2000–2009 returns last — the average annual return remains the same, but the order flips. In this scenario, the best years come first, and the worst come later.

That change alone raises the annual retirement income to $141,500.

The range of possible outcomes is wide. With the same starting balance and average return, simply rearranging the order of good and bad years can result in income ranging from $66,000 to $141,000 per year.

That’s the power — and danger — of luck in retirement timing.

You can’t control short-term market volatility, but you can minimize its impact. Using my investment system, which limits losses during down years, the effect of unlucky timing is greatly reduced — though it can never be eliminated entirely.

Because we can’t predict or control the sequence of returns we’ll experience, I recommend a conservative approach: Withdraw no more than 80% of your maximum projected income during your first seven years of retirement. This simple step helps preserve your capital and provides a crucial buffer against early market declines.

Stay Disciplined My Friends,

Phil

---

Disclaimers The Beyond Buy & Hold newsletter is published and provided for informational and entertainment purposes only. We are not advising, and will not advise you personally, concerning the nature, potential, value, or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. Beyond Buy & Hold recommends you consult a licensed or registered professional before making any investment decision.

Investing in the financial products discussed in the Newsletter involves risk. Trading in such securities can result in immediate and substantial losses of the capital invested. Past performance is not necessarily indicative of future results. Actual results will vary widely given a variety of factors such as experience, skill, risk mitigation practices, and market dynamics.