For early retirees, the key risk is not volatility. It is a crash that turns a safe withdrawal rate into an unsafe one. Here is how drawdowns change your withdrawal rate, in dollars.
The checks that matter connect drawdown to spending. Work out your withdrawal rate today, then replay past crashes and recompute it on what would be left. If a realistic crash pushes the rate far above your plan, the plan depends on luck in the first few years. Volatility on its own matters less than the timing of losses relative to withdrawals.
Early retirement makes this harder in two ways: the money has to last longer, and there is usually no salary to fall back on. See drawdown tolerance.
It raises it, sometimes more than double. Illustrative: $1,250,000 invested entirely in the S&P 500, spending $50,000 a year (4%). Peak-to-trough declines from Exent’s data, as of Sep 30, 2026.
| Crisis | S&P 500 decline | Portfolio at the low | $50,000 as a share | Gain needed to recover |
|---|---|---|---|---|
| Financial crisis, 2007–09 | −56.5% | $544,000 | 9.2% | +130% |
| COVID crash, 2020 | −34.1% | $824,000 | 6.1% | +52% |
| Inflation bear market, 2022 | −25.4% | $933,000 | 5.4% | +34% |
| Tariff selloff, 2025 | −19.0% | $1,013,000 | 4.9% | +23% |
A mix softens this. In a hypothetical 60/40 backtest from the same data (SPY and AGG, 2016–2026), the worst decline was 20.0%, which would leave $1,000,000 and a 5.0% rate. That decade did not include a 2008-style crisis, so it understates the bad case. See loss recovery math and how long crashes take to recover.
It was not tested for it. The 4% figure traces to research such as the 1998 Trinity study, published in the AAII Journal. It used US stock and bond returns from 1926 to 1995 and payout periods of 15, 20, 25 and 30 years, and found that 3% and 4% withdrawal rates rarely exhausted portfolios of stocks and bonds over those periods. A 40- or 50-year early retirement sits outside what it measured, and past US returns may not repeat. One approach is to treat 4% as a starting point to stress-test, not a guarantee.
Often only at a cost. According to IRS Topic 557, distributions from an IRA before age 59½ generally owe a 10% additional tax on top of income tax, with exceptions, including a series of substantially equal periodic payments. Early retirees often plan which accounts fund which years. The rules are detailed, so a tax professional who works with early retirees is worth consulting.
Replay real crashes on your real holdings, then redo the withdrawal math on what is left. Apply each holding’s fall in 2008, 2020 and 2022 to its current value, add up the total, and divide a year of spending by what remains. Note which holdings drive most of the loss. The withdrawal rate and spending plan are yours to set, ideally with a fee-only planner. Those closer to a traditional retirement age can read the near-retirement checklist.
There is no guaranteed rate. The Trinity study found 3% to 4% rarely exhausted stock and bond portfolios over 15 to 30 years of US history; early retirements can run longer, so some plans test lower rates or flexible spending.
It raises your withdrawal rate. Illustrative: $50,000 a year is 4% of $1.25 million, but 9.2% of what would be left after a 56.5% fall like the S&P 500’s in 2007–09.
It is the risk that big losses arrive early in retirement while you are withdrawing. You sell more shares at low prices, so the portfolio may not recover as it would without withdrawals.
It is a personal choice. Some early retirees hold one or more years of spending in cash or short-term bonds so they can avoid selling stocks during a downturn.
Generally yes. The IRS applies a 10% additional tax on IRA distributions before age 59½, with exceptions such as substantially equal periodic payments.
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Educational content, not investment advice. Examples are illustrative; past performance does not guarantee future results.