For decades, the 4% rule has been a golden standard for many retirement planners. Take your annual spending, multiply by 25 and, at least on paper, you\u2019re set for retirement. Want $10,000 a month? That\u2019s $120,000 a year, or roughly $3 million in savings.<\/p>\n
Simple, but also potentially misleading. Mostly because the 4% rule<\/a> is based on an assumption about the long-term average return of the stock market and overlooks the risk of sequence of returns.<\/p>\n In other words, if your retirement plan hinges on this back-of-the-napkin math, you\u2019re leaving yourself vulnerable to sudden and dramatic swings in the market. If you experience a bad market downturn early enough in your retirement, it could derail the rest of your journey. Here\u2019s why.<\/p>\n MassMutual describes the sequence of returns risk as an \u201coverlooked and misunderstood problem for retirees\u201d (1).<\/p>\n In simple terms, this is the risk that a market downturn hits you early in retirement, while you\u2019re also compelled to withdraw from your portfolio during this downturn. The combined impact of withdrawing from a beaten-down portfolio leaves you with permanently less capital to depend on for the rest of your retirement.<\/p>\n Let\u2019s say you retire with precisely $3 million and want to withdraw 4% of this every year. Unfortunately, your portfolio is entirely invested in the stock market which declines 20% in the first year of your retirement. By the end of the year, your nest egg has shrunk to $2.4 million.<\/p>\n You\u2019ve also withdrawn $120,000 during this year, so your nest egg has shrunk further, down to $2.28 million.<\/p>\n This first year loss is a permanent scar on your portfolio. Even if the market normalizes and delivers a steady and reliable 7% annual return beyond this point, your portfolio would be worth only $2.75 million by the tenth year, still below your starting point. Also, you\u2019ve breached the 4% rule of thumb every year during this period. This is why sequence of returns risk can be such a hidden trap.<\/p>\n Fortunately, there are ways to combat this risk if you plan ahead.<\/p>\n Read More: The average net worth of Americans is a surprising $620,654. But it almost means nothing. Here\u2019s the number that counts (and how to make it skyrocket)<\/a><\/strong><\/p>\n If you\u2019re looking to spend $10,000 a month without worrying about the stock market, there are three ways to mitigate the sequence of returns risk.<\/p>\n Story Continues <\/p>\n The first step is to maximize guaranteed income.<\/strong> For many seniors, this is simply their Social Security benefits. In 2022, Social Security checks accounted for more than half of total income for at least 63.2% of beneficiaries, according to the Pew Research Center, citing U.S. Census Bureau data (2). As of January, 2026, the average monthly payout is $2,071, according to the Social Security Administration (3).<\/p>\n In other words, this guaranteed source of income should allow you to meet a portion of your $10,000 monthly needs without market risk.<\/p>\n The second way to combat the sequence of returns risk is to plan with a margin of safety.<\/strong> For instance, if you expect to collect $2,000 a month from Social Security and $8,000 in withdrawals from your portfolio, the rule of 4% would suggest you need a nest egg worth $2.4 million. Aiming for 15% more, $2.76 million, should give you a comfortable buffer to withstand market turmoil and unexpected losses.<\/p>\n In other words, you can stay below the 4% withdrawal rule and worry less about market crashes if you save a little more than you actually need.<\/p>\n Finally, organize your retirement income into buckets instead of thinking of your portfolio as a single monolith.<\/strong> Perhaps the most effective way to minimize the sequence of returns risk, this strategy, suggested by U.S. Bank Wealth Management, is based on creating different buckets for short-term, medium-term and long-term needs (4).<\/p>\n For instance, you can keep some cash in highly liquid money market funds for day-to-day spending, while investing in robust bonds, government treasuries and fixed-income assets to meet spending needs for the next four or five years. The rest can be invested in the stock market for long-term needs, which gives your money more time to recover from any downturns, uninterrupted by any withdrawals.<\/p>\n A combination of these three strategies should help you spend $10,000 a month in retirement without any stress about the S&P 500 or recessions<\/a>.<\/p>\n We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines<\/a>.<\/p>\n MassMutual (1<\/a>); Pew Research Center (2<\/a>); Social Secuirty Administartion (3<\/a>); (4<\/a>)<\/p>\n This article provides information only and should not be construed as advice. It is provided without warranty of any kind.<\/p>\n","protected":false},"excerpt":{"rendered":"For decades, the 4% rule has been a golden standard for many retirement planners. Take your annual spending,…\n","protected":false},"author":2,"featured_media":296010,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[177],"tags":[79,1400,18,19,17,146973,234,235,12084,11756,1078,1402],"class_list":{"0":"post-296009","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-personal-finance","8":"tag-business","9":"tag-dave-ramsey","10":"tag-eire","11":"tag-ie","12":"tag-ireland","13":"tag-market-downturn","14":"tag-personal-finance","15":"tag-personalfinance","16":"tag-portfolio","17":"tag-retirement-plan","18":"tag-social-security","19":"tag-stock-market"},"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@ie\/115933890659093457","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/posts\/296009","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/comments?post=296009"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/posts\/296009\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/media\/296010"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/media?parent=296009"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/categories?post=296009"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/tags?post=296009"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}