If retiring early is a goal you hope to achieve, you are not alone. The FIRE (financial independence/retire early) movement is growing at a rapid pace; and why not with markets hitting all-time highs? However, have you really examined whether retiring at or near the peak of a bull market is the wisest decision? What will it mean for your portfolio if the market crashes? Maybe not as much as you would think with some expert planning.

Let’s take John Doe and his family for example. John is a frugal guy and has been actively planning to retire by age 45. With the markets hitting all-time highs, he knows a bear market is likely in the near future. However, his biggest fear is what the future bear market could do to the $2 million portfolio he has amassed.

To understand John’s fear, you need to know his family’s retirement history. Every generation, all the way back to his great-grandparents, retired just before a market crash and saw their purchasing power decline. However, if you’ve followed me for any amount of time you have repeatedly heard me say, “Let the market do what the market does.”

With that motto in mind, let’s see how the Doe family has really fared in the bear markets making the assumption that they are conservative investors with well-diversified portfolios, consisting of 60% US stocks and 40% bonds (5-year U.S. Treasuries). Being the frugal family they are, we will assume they all choose to withdrawal 4% for living expenses each year for the duration of their retirement, which they each plan to last 30 years. We will use these assumptions, regardless of the economic conditions or the portfolio’s performance. Again, these are just assumptions. We also know that past performance is not indicative of future results.

Now, starting with John’s great-grandparents, who chose to retire in 1928, just prior to the Great Depression—how’s that for timing—we can see exactly what their $2 million portfolios(1) did. At the end of their 30-years, great-grandpa, and great-grandma Doe had amassed a total portfolio of $4,418,420. Now, taking into account their 4% living expense withdrawal of $2,494,868 over those 30 years it’s clear that despite the poor timing, the market did what it does and they were able to cover their retirement expenses (2).

As for John’s grandparents, their situation was a bit different. They retired during the Great Inflation of the 1970s. Their growth was astounding, and they ended up with a portfolio of over $11 million in the end. However, in just a moment you will see how a correction with overinflation eroded most of those gains. Their large portfolio allowed them to make 30 years of withdrawals for a total of $6,786,004 with a 4% living expense. Yet again, they also covered their retirement expenses.

John’s parent fared similarly to his great-grandparents up to this point. Since they retired in 2000, we don’t have a complete picture of withdrawals. We can see in the 17 years of taking a 4% living expense withdrawal, their $2 million portfolio and have been able to live off of $1,395,018—leaving them with a $2,610,308 portfolio to continue growing and covering the next 13 years.

When we factor in inflation(3) at the annual inflation rate according to the CPI calculator, we can still see that retiring at the peak of the market may cost you some, but the market(4) is still efficient:

Whether you choose the FIRE route for your retirement or plan to go the more traditional route, it is possible to retire at the stock market peak and still weather the economic downturns. The key to doing so is a highly-diversified portfolio and a well thought out financial plan to cover your expense and help you reach your long-term goals.


    1. That would be roughly $140k in 1928, $365k in 1972, and around $1.5 million in 1999.
    2. In this fictitious example, we are ignoring the taxes/fees because the example math becomes overly complex and the fact that the 4% rule or index funds did not exist in the 1928 or 1972 examples. We are making it simpler by using a portfolio that is relatively undiversified internationally. In this example, we are using a 7.25% married assumed state tax rate and the 2017 tax rates on a $40k initial withdrawal from an IRA and not taking into account social security.
    3. Using a 4% withdrawal rate, I increased or decreased each year by the amount of annual inflation, or in some year deflation, with the CPI as the inflator (deflator).
    4. The example was calculated using a total of 30 years of retirement withdrawals for the great-grandparents and grandparents. However, for John’s parents, there are only 17 annual withdrawals at this point.