• Work With Me
• Georgios Argyris: Creating A Flexible Retirement Date ‘Window’ To Mitigate Sequence And Cohort Risk
• Sequence Risk: Is It Really a Big Deal?
• Understanding Sequence Of Return Risk – Safe Withdrawal Rates, Bear Market Crashes, And Bad Decades
• Decision Rules and Maximum Initial Withdrawal Rates
• Reducing Retirement Risk with a Rising Equity Glide Path

Imagine two retirees with nearly identical financial plans. Same $1 million portfolio, same 60-40 allocation, same 4% withdrawal rate adjusted for inflation, and the same 30-year retirement.

The only difference is that one of them retired at the end of 1973, and the other retired at the end of 1975, just two years apart. Now, fast-forward 30 years. The retiree who entered retirement with $1 million in 1973 finished with only $280,000.

The retiree who started at the end of 1975 finished with nearly $3.4 million. Again, same portfolio, same strategy, same length of retirement, but two different start dates produced two very different outcomes.

That’s the power and the risk of retirement timing. And I know it would be easy to dismiss that example as an extreme case, a strange accident of history, or a brutal market period that probably doesn’t tell us much about the current environment.

But that’s exactly what makes the research I’m sharing with you today so interesting.

A recent paper published by Georgios Argyros, I hope I’m pronouncing that correctly, who is a quantitative risk expert with a PhD in mathematics from the University of Illinois, looked at nearly a century of market history and asked a question that doesn’t get nearly enough attention. How much can your exact retirement date affect the outcome of your plan? Not whether you retire at 55, 60 or 65, but whether you retire this year, next year or two years from now.

Because in retirement planning, we spend a lot of time talking about savings rates, withdrawal strategies, asset allocation, taxes and spending.

And while all of those things matter, the research suggests that one of the biggest factors may be something much simpler. The market environment you happen to retire into.

In fact, when he looked across nearly a century of market history, what he found was that the originally planned retirement date, the date the retiree picked, was rarely the best choice.

More often, the better historical outcome came from shifting the retirement date slightly. And in most of those cases, the better answer was to delay by one or two years. Now, that does not mean everyone should automatically work longer.

It doesn’t mean your retirement plan should be ruled by short-term market movements. And it definitely does not mean you should try to predict the next bear market before deciding when to retire.

What it does mean is that retirement timing deserves more attention than it usually gets.

So in today’s episode, I’m going to walk you through the key findings from this research, explain why the year you retire can have such an outsized impact on your plan, and to help you take action, I’m sharing the three-part playbook in priority order for protecting your retirement plan when the market environment looks unfavorable.

Welcome to another episode of the Stay Wealthy Retirement Show. I’m your host, Taylor Schulte, and every week, I tackle the most important financial topics to help you stay wealthy in retirement. And now, on to the episode.

Why 2 Retirees With the Same $1M Plan Ended $3M Apart

To set the stage, this research study on retirement timing used data going back to 1929 and looked at 97 different 30-year cohorts.

But it didn’t just ask what happened after someone retired, it also looked at what happened in the years leading up to retirement. Because in real life, your portfolio doesn’t just suddenly appear on the day you stop working.

You spend decades saving and investing first, then you begin taking withdrawals.

So the study connected those two phases, the years before retirement and the years after retirement, to see how the full retirement life cycle played out across real market history. No simulated returns, no assumptions about what the future might look like, just what actually happened to investors who lived through these periods.

Then for each life cycle, the analysis tested five different retirement dates, the originally planned date, one year earlier, two years earlier, one year later, and two years later. And this is where the results get really interesting.

Retiring on schedule exactly when the plan originally assumed was only the best choice 15% of the time. On the other end of the spectrum, delaying retirement by one or two years was the best choice in 64% of the historical life cycles.

Retiring early was the best option 21% of the time. In other words, the original retirement date, the one most people build their entire plan around, was rarely the optimal date. But here’s what really caught my attention when I first read the paper.

Of the four life cycles in the simulation where the retiree actually ran out of money, meaning full portfolio depletion before the 30-year mark, of those four scenarios that ran out of money, every one of them could have survived simply by shifting their retirement date within that two-year window. Think about that, the difference between running out of money and finishing comfortably wasn’t a different withdrawal rate. It wasn’t a different asset allocation. It was choosing a different year to retire.

So why exactly does retirement timing have this kind of outsized effect? To answer that, Yorgos introduces a really useful distinction. Most of us are familiar with sequence of returns risk.

In short, it’s the idea that when returns happen, can matter just as much as what those returns are. That’s why a bad market early in retirement can be so damaging. You’re not just watching the portfolio go down, you’re also taking withdrawals from it to fund expenses. And when withdrawals happen while the portfolio is going down in value, it can be much harder for the money to recover later.

But Yorgos wisely points out that what we casually call sequence risk is actually two different things mashed together. And separating them helps explain why the same retirement strategy can produce very different results.

1.) The first of these two components is what he calls cohort risk. Put simply, this is the risk of experiencing a particular set of returns. For example, someone who retires in the early 1980s gets a fundamentally different collection of returns than someone who retires in the late 1960s. Even if you shuffled each set into the best possible order, one set would still win because the underlying market environment was just plain better.

2.) The second component is what he calls pure sequence risk. This is the risk that the order of a given set of returns works against you. Two people may experience the same 30 year average returns, but if the bad ones show up early for one person when they’re taking withdrawals, they do more damage than if the bad returns show up later in retirement.

And stick with me through this next part, which does get a little nerdy because understanding this concept is what makes the three actionable strategies I’m sharing later make a lot more sense.

So using something called the law of total variance, Yorgos decomposed historical retirement outcomes to figure out how much each of those two components actually contributes. And through his research, he found that roughly 75% of the variation in retirement outcomes comes from the first component, cohort risk, the market environment you happen to retire into. Which means only about 25% comes from the second component, the specific order of returns within that environment.

So three-quarters of your retirement outcome is driven by which decade you retire into, and only one quarter is driven by the order in which the returns within that decade arrive. It’s an interesting distinction because most retirement strategies are focused on managing sequence risk. Dynamic withdrawals, guardrails, asset allocation changes, glide paths.

They can all be useful, but they mostly operate within the retirement environment you already landed in. They can help you navigate the 25% slice of risk tied to the order of returns, but they don’t change the market era itself.

Your retirement date is different. It’s one of the few levers that can potentially move you into a different cohort altogether. A different starting point, a different sequence, and a different set of returns.

The timing matters even more when you look at where market losses fall in someone’s life. Specifically, the analysis looked at what happens when a single bad year defined as a 20% market decline shows up at different points along the retirement lifecycle. The result was pretty clear and perhaps not totally surprising.

A 20% loss does the most damage near the end of the wealth accumulation years and near the beginning of the spending years. Late in your career, your portfolio is typically at its largest, so a major decline can erase years of savings progress. And once retirement begins, the damage can compound because you’re no longer adding to the portfolio. You’re taking money out.

That transition from saving to spending is the most fragile point in the retirement lifecycle, and it helps provide yet another example of why the exact timing of retirement can matter so much. And that same idea shows up in another part of the research. Starting retirement with more money did not always lead to a better result. I’ll say that again. Starting retirement with more money did not always lead to a better result.

In fact, when the study connected the savings years to the retirement years, it found a strong negative relationship between portfolio size at retirement and the outcome that followed.

In plain English, larger portfolios at the start of retirement often led to worse outcomes. I know that sounds strange, but the explanation is fairly straightforward.

Yoria shares that the same market environment that produces an unusually large portfolio can also leave future returns more limited. And the opposite can also happen. A difficult saving period can leave someone with less money on retirement day, but if that period is followed by a strong retirement environment, the outcome can be much better. Here’s one example from the study.

Two hypothetical savers followed the exact same plan. Each saved $10,000 per year and invested in the S&P 500 for 30 years. The first person started saving in 1953. After 30 years, he had accumulated just over $400,000, a below average result. But fortunately for him, he retired in 1983, near the beginning of one of the strongest bull markets in history. As a result, he actually finished retirement with nearly $2.7 million, even after 30 years of withdrawals. The second person started saving in 1937.

And after 30 years, following the same saving and investing plan, he had accumulated more than $2.1 million, over five times as much as the first person. However, he retired in 1967, just before a much more difficult period for retirees. And despite starting with far more money, his portfolio was depleted before the 30-year mark. So, the person who retired with five times more money ran out. And the person who retired with a much smaller balance ended up with millions.

That’s obviously not because saving and accumulating more money is bad. It’s because your portfolio balance on retirement day only tells part of the story. The next chapter of life often depends heavily on the market environment that follows.

And the explanation comes back to what created the large portfolio in the first place. You see, a strong bull market doesn’t just lift up account balances. It can also pull some of those future returns into the present.

In other words, by the time someone retires, much of the good news may already be reflected in current stock prices. And that matters because markets don’t move in a straight line forever. When prices rise faster than the underlying fundamentals, future returns often have a harder time keeping up with that pace and in turn can end up lower than the prior period.

So, the same market environment that makes retirement feel safer, a portfolio that grew quickly right before retirement, may also make the next decade more challenging. And this wasn’t just one unusual example.

Across the full analysis, the cohorts that ran out of money actually started retirement with much higher wealth than the cohorts that survived. On average, the failed cohorts began with about 2 million dollars. The successful cohorts began with closer to 1 million dollars. In other words, the people who looked most prepared on paper, the ones with the largest balances and the strongest recent returns, are not always in the safest position.

In some cases, they may need the most careful planning around retirement timing, withdrawal rates, and expectations for the decade ahead. I know that may feel a bit unsettling.

The good news is that there are 3 specific actions you can take in response, and once we work through how to read today’s environment, I’m going to walk you through them in priority order so you know exactly which lever to pull first, second, and third.

So with all that in mind, how can we tell whether today’s environment looks more like 1983 or 1967? Well, unfortunately, we can’t know for sure. Nobody has a crystal ball, and no indicator can perfectly predict what the next decade has in store for us. However, there are what I might call clues that can help us understand whether the starting point looks favorable or challenging.

One of the more useful clues highlighted in Yorgio’s paper and other research on this topic is the Schiller-Cape ratio. CAPE stands for Cyclically Adjusted Price to Earnings. It sounds technical, but the idea is fairly simple.

It compares the current price of the S&P 500 to the average inflation-adjusted earnings of the companies in the index over the previous 10 years. To try and put it simply, the CAPE ratio is one way to ask the question, how expensive are stocks today compared to the profits companies have produced over time?

Broadly speaking, a higher CAPE ratio means that investors are paying more for each dollar of earnings. That doesn’t mean a crash is right around the corner. It doesn’t even mean returns are guaranteed to be low next year or the year after that.

But historically, when investors have paid a high price for earnings, the following decade has often been more challenging. And that pattern showed up in this research study as well.

Cohorts that retired when CAPE was elevated were much more likely to land in the bottom third of future return outcomes. In fact, in the analysis, three of the four historical cohorts that ran out of money began retirement when CAPE was high.

So to be clear, the question is not, what will the market do next? That’s unknowable. According to the study, the better question might be, does today’s environment resemble the historical periods when traditional withdrawal strategies struggled?

That’s still not a perfect question, but it’s a much more useful one. And it leads us to the million-dollar question. If the diagnostics suggest that you may be retiring into a riskier environment, what can you actually do?

In his paper, Yorgos lays out three specific strategies, and the order of these strategies matters because it follows directly from the earlier finding that most of the variation in retirement outcomes comes from the market environment you retire into.

1.) The first strategy, strategy A, is to simply adjust the retirement date.

As he points out, even delaying retirement 12 to 24 months can matter, and this is the most powerful lever because it’s the only one that directly addresses cohort risk, the broader market environment surrounding your retirement date.

That doesn’t mean necessarily working full time for several more years. It could mean working part time, consulting, delaying portfolio withdrawals, or if you’re a long time listener of this show, using that war chest of cash to bridge the gap.

The goal is not to work forever. The goal is to avoid locking in a 30-year withdrawal plan at a potentially unfavorable starting point. And by the way, this flexibility can work in both directions. If conditions look more favorable, there may be a case for retiring a little earlier than planned.

2.) The second strategy, strategy B, is to reduce the initial withdrawal rate.

If shifting the retirement date, if delaying retirement is not a realistic or even feasible option, this is the next most powerful lever according to the research. And the numbers here are pretty striking.

In the analysis, simply reducing the starting withdrawal rate from 4% to 3.5% eliminated every historical failure in the bottom third cohorts, every single one. Even a small reduction from 4% to 3.8% would have eliminated three of the four failures.

Of course, the trade-off is real. On a $1 million portfolio, a 3.5% withdrawal rate means $35,000 of initial income instead of $40,000. But that lower starting point creates a meaningful margin of safety for the future. And keep in mind, if the first decade turns out to be better than expected, you may be able to increase spending later on.

So you’re not necessarily giving up that income forever. You’re buying flexibility during the most fragile years of retirement. Unfortunately, these are also your most active years, so the decision needs to be handled with care and intention.

3.) Lastly, Strategy C is to use dynamic spending rules.

This includes guardrails, flexible withdrawals, and other research-backed approaches to adjusting spending as markets change. These dynamic strategies matter because even within a difficult market environment, the order of returns still plays an important role. If the bad returns show up early, a flexible withdrawal strategy can help limit the damage.

That might mean taking a smaller inflation adjustment, temporarily reducing discretionary spending, or using guardrails to decide when spending should increase or decrease.

So while dynamic spending rules may not change the market environment you retire into, they can absolutely help you respond to it more intelligently. And in the most challenging historical cohorts, that flexibility could be the difference between a plan that survives and one that fails.

Ultimately, the point being made in the research is that guardrails or other flexible spending rules are best viewed as a backstop, not the first line of defense. They can help you adjust once retirement begins. They can help you respond if markets are worse than expected. But they don’t change the environment you retired into. And that’s why the order matters. A first, then B, then C.

Start by asking whether the retirement date has any flexibility. If it doesn’t, the next best approach is usually to combine a lower starting withdrawal rate with dynamic spending rules.

Let’s look at a quick example to bring all of this together.

Picture a 62-year-old with a $2 million portfolio who sits down with an advisor and says, I’m ready to retire. Do I have enough? Under the conventional approach, the answer might seem obvious. $2 million at a 4% withdrawal rate produces $80,000 per year. If that covers the retirees’ needs, the conversation usually shifts to implementation, income sources, portfolio allocation, tax planning, and how to manage withdrawals. But your EOS framework adds another layer.

The advisor might say, From a numbers standpoint, you are in a strong position to retire. But I don’t want to stop at the account balance. In some cases, portfolios are built during strong market periods, and strong periods can sometimes leave future returns more limited. So let’s look at a few options.

1.) One option is to delay retirement by 12 to 24 months, and let the next year or two of market data help inform the decision.

2.) Another option is to retire on schedule but start with $70,000 of spending instead of $80,000 with room to increase later if conditions improve.

3.) And finally, the third option is to keep the $80,000 target but build in very clear rules for temporarily adjusting spending if markets struggle early. There isn’t one perfect answer, but the conversation itself is different.

Instead of treating the retirement date as a fixed assumption, Georgios argues that it should become part of the planning process, something to evaluate alongside withdrawal rates, portfolio design, spending flexibility and tax strategy.

That doesn’t mean everyone should just delay retirement, and it doesn’t mean the answer is always to spend less or take less risk. It simply means retirement timing deserves more attention than it usually gets, especially when the starting environment looks to be a little more fragile. Now, to be clear, and as I alluded to earlier, delaying retirement is not a free lunch.

There are real costs to working longer. Fewer early active years in retirement, more time under work stress, and the risk that health or family circumstances change before you ever get to fully enjoy the next chapter.

So the takeaway is not just keep working. The takeaway is that timing should be weighed against the life you’re trying to build. Your health, your family, the work you’re doing, the trade-offs you’re willing and unwilling to make. Because in the end, the goal is not to find the mathematically perfect retirement date. It’s to make a better informed decision about when work has done its job and when it’s time for the next chapter to begin.

So let’s bring this back to where we started. Same plan, same starting balance, same withdrawal rate, same portfolio, two retirees, two years apart. One finished with about $280,000, the other finished with more than 3 million.

The only thing that changed was the market they retired into. While you can’t predict what the markets will do with precision, your retirement date is one of the few variables you can actually influence. So if you’re within a few years of retiring, you may consider asking some sharper questions. Does the current environment look favorable or fragile? Do I have the flexibility to move my date by 12 to 24 months if I wanted to?

If I can’t or won’t delay, should I start with a slightly lower withdrawal rate? And if markets struggle early, do I have clear rules for how my spending adjusts? None of that requires a crystal ball. It just makes the plan more honest. Having enough matters, but it doesn’t answer the whole question. The real question is whether your plan is built for the environment you’re actually walking into.

And here’s the part that ties it all together. The more coordinated your decisions are, the more flexibility you have. And flexibility is exactly what protects you if the early years turn out to be the bad ones.

The way they were for the retiree who ended up with $280,000 instead of $3 million. That’s the work we do through our total retirement system, specifically designed for retirement savers over age 50. We connect those moving pieces so the decision to retire rests on a coordinated plan, not just an account balance.

To learn more or schedule a retirement strategy session, follow the link in the episode description or visit youstaywealthy.com and click the work with me button to watch a short video on how we help clients think through exactly these decisions.

Thank you as always for listening and to view the research and resources supporting this episode, just head over to youstaywealthy.com/284.

Disclaimer

This podcast is for informational and entertainment purposes only, and should not be relied upon as a basis for investment decisions. This podcast is not engaged in rendering legal, financial, or other professional services.