The Probability Of Going Broke As Retired Or FIRE - Sequence Risk And Withdrawal Rate
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This article looks at how likely you are to go broke as retired or FIRE. Because of low interest rates many retirees gravitate towards more risky equities. Is that wise? More risk means a bigger chance of ruin. A bear market can last fora very long time - even a decade. What happens to the value of your portfolio if you are "unlucky" with the sequence of returns and/or the withdrawal rate? How long does it take before you run out of money?
If you don’t have a huge margin of safety, you are very likely to go broke as retired or FIRE. You might be in problems right off the bat if you are unlucky with the sequence of returns, you might be in big trouble right off the bat. Furthermore, you might risk bleeding to death if your withdrawal rate is too high, or if you are poorly diversified.
Being a pensioner or FIRE involves many "ifs".
If you want to read more about this issue, including concrete examples of backtests of different portfolios, please read our article called how likely are you to go broke as FIRE or retired.
Have you done anything regarding "The Options Wheel" for generating income in retirement? Like if someone had let's say $200,000 they devoted to this strategy. So let's say they purchased $100,000 worth of SPY and kept $100,000 in cash. They sell covered calls on their SPY shares every month and sell cash-secured puts on SPY as well.
If SPY rises ITM of their calls, their CSP position will be profitable. If SPY drops ITM of their puts, their CC will be profitable.
And it's not too big a deal if shares get called away or assigned as you're always just selling calls and puts.
You could generate let's say probably around 1.5% to 2% every single month.
Let's say you JUST used this strategy to generate retirement income, while stuffing all the rest of your money into index funds and not even touching them.
Curious what that would look like. You could generate retirement income in a dynamic way, regardless of market fluctuations, while never even withdrawing from your long-term positions.