Sequence risk in early retirement
Why drawdowns in the first decade matter most and how local economic volatility affects sequence risk.
Queries we’re answering: sequence of returns risk retirement • early retirement drawdown risk • market risk by state for retirees
Key takeaways
- • BLS unemployment volatility is a proxy for local economic shocks and job market stability.
- • Flexible withdrawals and cash buffers reduce sequence risk; location affects needed buffer size.
- • Housing, tax, and insurance costs drive withdrawal pressure during drawdowns.
Deep dive
Timing matters: a bad market in your first decade of retirement can derail a plan even if long-run averages look fine. Your score weights early-sequence stress and local cost pressure.
Your score uses unemployment-rate volatility as a public proxy for local economic shocks that often coincide with market stress and higher withdrawals.
Signals we consider
- • Volatility proxy: 10-year std dev of unemployment rate (BLS LAUS) by state/county.
- • Early decade focus: Drawdowns near retirement hurt most; location costs drive withdrawal pressure.
- • Buffers + flexibility: Cash reserves and COLA flexibility can lower risk in high-volatility locations.
How it enters the score
- Sequence-of-returns exposure: Drawdowns in the first 5–10 years after retirement have an outsized impact on portfolio survival.
- Portfolio mix vs volatility: Equity/bond mix, factor tilts, and concentration change downside risk and recovery speed.
- Withdrawal rules and guardrails: Fixed vs flexible withdrawals, COLA adjustments, and dynamic rules affect how shocks propagate.
- Cash buffers and buckets: Cash reserves or near-cash ladders can reduce the need to sell into drawdowns.
- Location-driven costs: State + city tax, housing, and insurance volatility shape how much you must withdraw in stress periods.
Data sources
- • Market return histories and drawdown stats
- • BLS CPI and regional inflation for real spending adjustments
- • State tax policy and brackets affecting after-tax withdrawals
- • Housing/insurance trend data for location-specific cost spikes
Data freshness: BLS LAUS unemployment rates (state and county) through the latest AllStatesS/County files; 10-year volatility recomputes with each release.
How this affects you
These signals feed directly into the RetirementRiskIQ score. They are relative to other states and cities, using public, defensible data. No advice or sales—just context so you can make informed decisions and test scenarios in the assessment.
FAQs
- Why does my score use unemployment volatility? — Local unemployment spikes often coincide with market stress and higher withdrawal needs; it’s a public, defensible proxy.
- Can I lower sequence risk without moving? — Yes. Larger buffers, flexible withdrawals, and spending aligned with local cost volatility can reduce sequence pressure.