035.Sequence of Return Risk

035 | Sequence of Return Risk | Early Retirement Now

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
  • Hot Seat Questions
  • Benefits of geographic arbitrage
  • Ern feels he was complacent with his savings rate earlier in life
  • Becoming wealthy is a long-term process of small, regular investments and staying the course when the equity market is down

Links from the show:

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8 thoughts on “035 | Sequence of Return Risk | Early Retirement Now”

  1. Thanks, Jonathan and, Brad for putting this podcast together. I had such a great time! You did an amazing job making this a fun and informative episode. I have this image in my head of Jonathan wearing a Benihana hat while cutting my rambling responses! 🙂
    And I realize that my daughter made it into the podcast if you listen very carefully to some of the background noise. Sorry about that but apparently, even at age 3, she’s already excited about Sequence of Return Risk!
    Have a great week, everybody!
    Big ERN

  2. I have to hand it to you guys, you’re really doing a phenomenal job bringing together excellent guests. I don’t listen to every episode but the ones I do, I’m quite glad I did. Your upbeat attitude and energy brings it all together, and I know it’s not easy to work at that elevated level for so long!

    My only disappointment was Big ERN’s voice. With a name like Big ERN, I really was expecting to hear a large backwoods/rednecky sort of voice. Instead, I was left someone who sounded…you know, intelligent and stuff. 🙂

    Thanks, and Keep up the cause!

    • “With a name like Big ERN, I really was expecting to hear a large backwoods/rednecky sort of voice.”

      Ha, that’s my cousin Big Bubba. He’ll be on the show in early 2019. Thanks for the comment – I had a smile on my face the whole day! 🙂

  3. Great podcast gentlemen! I’ve got to say – I was impressed with ERN’s safe withdrawal analyses before. But now after hearing him speak so enthusiastically about the topic and listening to some of the arguments he makes, this takes it to a whole new level! Thanks for putting this one together.

  4. My head is spinning! I started late in the FI, I may not accomplish and really early retirement, but I will have the ability to choose by the age of 55. I started myself a few years back, listened to the Dave Ramsey, MMM, JLCollins, Mad FI, and many more… One point that I’ve always struggled with was the ‘pay off your mortgage’ item. I could not bring myself to do it, I felt that building my taxable account was more of a priority… my returns were much greater by flooding my account with VTSAX… although I had never found anyone that had put the math to my assumptions… between this pod case, and the Friday round up with a cross reference to ‘Why would anyone have a mortgage and bond portfolio’ really gave me confidence in my choices. Note to Big ERN: Over the past few years, I had not found your blog – but now you are in my regular reading schedule and I’ve already bookmarked a few of your articles for reference and re-read! Thank you and the Choose FI group for your efforts – people (young, mid and older) need to apply these ideas to their daily lives… You all can change the world! 😉

  5. Pingback: Safe Withdrawal Rate SWR

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