Part 4/9:
Many people overlook the underlying factors that make the 4% rule potentially risky. As the 4% rule largely relies on average returns, it does not account for the sequence of returns, which refers to the order in which investment returns occur. For example, if a retiree experiences poor market performance initially, they may find their savings dwindle rapidly regardless of the average returns at the end of retirement.
Historically, very few retirees needed to adhere strictly to the 4% rule. With research suggesting that the sequence of returns is more critical than average returns, it may be wise for retirees to consider alternative spending strategies that allow for a more flexible and potentially more profitable income flow.