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← Sequence of Returns in Retirement
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Question
Why does a severe bear market in the early years of retirement cause more damage than the same bear market in the later years of retirement?
1
Retirees in early retirement pay higher capital gains tax on losses than those in later retirement.
2
Early bear markets affect more years of compounding and force the sale of depressed assets to fund expenses, permanently reducing the portfolio base from which future recovery must grow.
3
Investment costs are higher in the early years of retirement, amplifying the impact of any market decline.
4
Early bear markets reduce the government pension entitlement, which is recalculated annually.
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