a 30% crash costs $17,000
A 30% crash in your first year of retirement costs about $17,000.
That's the number for anyone whose bills will someday come out of an account instead of a paycheck.
The $300,000 that vanishes off the screen mostly comes back.
Here's the math:
You retire with $1,000,000. The market falls 30%, so you're looking at $700,000.
You still need $40,000 to live on that year, so you sell it.
The market climbs all the way back to where it started, and you finish at about $943,000.
Now run that same year with no crash in it.
Flat market, same $40,000 withdrawal, and you finish at $960,000.
The crash cost you $17,000. The rest came back.
What didn't come back is the shares you sold while they were cheap.
You handed those over at the bottom price, and they were gone before the rebound arrived.
The drop reverses. The selling you did during it doesn't.
My dad built spec houses and got caught holding a couple when the market turned in 2008.
He didn't get to choose when he sold, and that's the part that did the damage.
You don't get to pick the year you retire, or what the market does in it.
You do get to pick where next year's grocery money comes from.
If your portfolio has to produce $40,000 a year, keep $80,000 to $120,000 of it out of stocks entirely.
Cash, T-bills, or short-term bonds. Those barely move when stocks fall apart.
Something that drops alongside your stocks does you no good in the one year you need it.
Then when a bad year shows up, you spend from that instead of selling a single share at a discount.
You refill it in the years the market is up.
The crash still comes. It just can't reach your grocery money.
As promised, income over wealth in under a minute.
- Dan
That's the number for anyone whose bills will someday come out of an account instead of a paycheck.
The $300,000 that vanishes off the screen mostly comes back.
Here's the math:
You retire with $1,000,000. The market falls 30%, so you're looking at $700,000.
You still need $40,000 to live on that year, so you sell it.
The market climbs all the way back to where it started, and you finish at about $943,000.
Now run that same year with no crash in it.
Flat market, same $40,000 withdrawal, and you finish at $960,000.
The crash cost you $17,000. The rest came back.
What didn't come back is the shares you sold while they were cheap.
You handed those over at the bottom price, and they were gone before the rebound arrived.
The drop reverses. The selling you did during it doesn't.
My dad built spec houses and got caught holding a couple when the market turned in 2008.
He didn't get to choose when he sold, and that's the part that did the damage.
You don't get to pick the year you retire, or what the market does in it.
You do get to pick where next year's grocery money comes from.
If your portfolio has to produce $40,000 a year, keep $80,000 to $120,000 of it out of stocks entirely.
Cash, T-bills, or short-term bonds. Those barely move when stocks fall apart.
Something that drops alongside your stocks does you no good in the one year you need it.
Then when a bad year shows up, you spend from that instead of selling a single share at a discount.
You refill it in the years the market is up.
The crash still comes. It just can't reach your grocery money.
As promised, income over wealth in under a minute.
- Dan