Retiring early is a dream for many, a soon to be reality for others; but with 8.9% of Americans 65 and older living in poverty (US Census Bureau) it could be a nightmare for the ill-prepared. If the standard (historical) averages and assumptions about the stock and bond markets don’t hold up into the future, an early retirement all of a sudden goes from being a sure thing to a disaster. Understanding how minor disruptions to your underlying assumptions, such as historically lower returns, affect your likelihood of success is critical before embarking on an early retirement journey.

Historically lower returns are a big deal for early retirees in particular because they represent a large percentage of an early retiree’s withdrawals. A retiree who plans to make around $40,000/year for 30 years with a $1,000,000 account, is only looking for $200,000 in real gains in their portfolio value over their lifetime ($40,000 * 30 years = $1,200,000). But an early retiree who is looking to make the same 4% withdrawal for 50 years from a $1,000,000 account is looking for at least $1,000,000 in real gains in their portfolio value over their lifetime. An early retiree depends on the market performance in a much more significant way than a regular retiree, so lets take a look at how lowering future market returns affects the regular vs. the early retiree.

I am making some assumptions with these simulations, such as a 10% tax drag on taxable accounts (taxes on dividends and gains), the taxable vs non-taxable account sizes being split 50/50, withdrawing from taxable sources first and then and only then tapping into non-taxable accounts, and a ‘Balanced’ portfolio allocation of 60% stocks, 35% bonds, and 5% cash, as well as no extra income like social security added in.

For the 30 year retirement the chances of success are around 93%, and with 25% lower stock returns the chances of success drop a lot, down to 75%. For 50 years the chances of success are around 85%, not a lot different than the 30 year retirement right? But with 25% lower stock returns, the chances of success drop all the way down to 55%. I don’t know about you but going from an 85% chance of success to a 55% chance if the markets average 5% in real returns (after inflation) instead of 6.7% over my retirement sounds like a big red flag!

G.I. Joe said ‘Knowing is Half the Battle’. Understanding this risk is a crucial first step to making plans for how to mitigate this risk, this looks to be especially true for individuals who are looking to retire earlier than average and their advisors who are looking to help them do so.

There is some good news for retirees in general, but perhaps especially for early retiree’s: Cutting back spending during the bad times (aka when your withdrawal rate goes high or your portfolio balance drops below a threshold), can increase you probability of success quite a bit and can be designed is such a way that is simple to plan for and execute.

You can explore a simplified version of the retire early results at: and a simplified version of the lower stock returns simulation at: