If there’s one fundamental takeaway from the research on safe withdrawal rates, it’s that market volatility really matters during a retiree’s withdrawal years. Even when long-term returns average out in the end, if the sequence of volatile returns is unfavorable, there is a danger that ongoing distributions during the bad years early on could deplete the portfolio before the good years ever come.

As a result, many advisors and their clients use strategies that avoid taking distributions from asset classes such as equities during down years. One example is setting aside buckets as a reserve against market crashes. Or you might create a series of “decision rules” that state outright that equities will be sold only if they’re up; otherwise, bonds will be liquidated instead, with cash/Treasury bills to be used if everything else is in the red at once.

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