What a market crash in your first year of retirement does
Two people can retire with the same money, the same plan and the same long-run average return, and end up in completely different places. The difference is when the bad years arrive. Here is that difference, measured.
The setup
A 65-year-old retires with £750,000 and spends £35,000 a year in today's money, with a State Pension of £11,500 from 67. We run four versions: normal simulated markets, a forced 30% fall in the first year, a 30% fall followed by a further 10% fall, and the first-year crash with an immediate 10% cut in spending.
Assumptions used
- Age today / retiring at / plan to
- 65 / 65 / 95
- Starting portfolio
- £750,000
- Annual contributions until retirement
- £0
- Retirement spending from the portfolio
- £35,000 a year, today's money
- Guaranteed income
- £11,500 a year from age 67
- Expected return / inflation / volatility
- 6% / 2.5% / 13%
- Simulation
- 1,000 runs, returns drawn at random each year
- In the shock runs, the first one or two years of returns are fixed; every later year is drawn at random as usual.
- The spending-cut run holds the lower spending for the whole retirement, which is conservative — most people would restore spending after a recovery.
Taxes, platform charges and changes in spending through retirement are not modelled. Figures are illustrations produced by the Retiris model, not predictions.
The four runs
| Scenario | Runs that lasted | Median years funded | Typical shortfall age | Steady projection |
|---|---|---|---|---|
| Normal markets | 84% | 30 | 91 | £753,344 left at 95 |
| -30% in year one | 48% | 30 | 88 | £753,344 left at 95 |
| -30%, then -10% | 31% | 25 | 86 | £753,344 left at 95 |
| -30% in year one, spending cut 10% | 64% | 30 | 90 | £942,196 left at 95 |
Middle of simulated outcomes, in today's money
Why the damage is permanent
When a portfolio falls 30% and you withdraw £35,000, that withdrawal is a much larger share of the remaining capital than it was planned to be. Those units are sold at the bottom and never participate in the recovery. The market can come back fully and the portfolio still cannot, because it is a smaller portfolio by the time it does.
This is why identical average returns produce different outcomes and why we publish success rates rather than a single projected balance. A plan that only works if the first decade behaves is not a plan, it is a bet.
What actually defends against it
- A cash buffer. Two to three years of spending outside equities means you never have to sell into the fall.
- A written spending rule. Decide now what you cut and for how long. The fourth run above shows how much that is worth.
- Guaranteed income. State Pension, Social Security or an annuity floor keeps the essentials funded regardless of markets.
- Lower volatility near the date. Same expected return, narrower spread, better odds in exactly the years that matter.
- Flexible retirement date. Even six months of part-time income during a fall replaces withdrawals at the worst possible time.
Test your own tolerance
Change the spending and volatility below to see how much slack your own plan would need.
Try your own version
Everything else stays as set out in the assumptions above.
In this model, under these assumptions. Not advice, and not a forecast.
Frequently asked questions
What is sequence-of-returns risk?▾
It is the risk that poor returns arrive early in retirement, while you are withdrawing. The same average return delivered in a different order produces a very different outcome, because withdrawals during a fall permanently remove capital that would otherwise have recovered.
How bad is a crash in the first year of retirement?▾
In these runs a 30% fall in year one cuts the share of markets where the money lasts noticeably, and a second down year compounds it. The damage is not the fall itself but the withdrawals taken while the portfolio is depressed.
Does cutting spending after a crash actually help?▾
Yes, and it is the cheapest fix available. In this model a permanent 10% reduction taken immediately after a 30% first-year fall recovered roughly a third of the odds lost to the crash, without needing better returns.
How big should a cash buffer be?▾
Two to three years of portfolio spending is the common range. It exists so you can pause withdrawals from equities during a fall rather than selling into it.
Should I move to bonds just before retiring?▾
Reducing volatility around the retirement date lowers sequence risk, which is why glide paths exist. The trade-off is lower expected growth over a retirement that may run 30 to 40 years, so the answer is usually a shift rather than a switch.
Sources
Modelled figures on this page were produced with the Retiris retirement model, described in full on how the model works. They are illustrations of hypothetical scenarios, not research findings about real households.
Retiris tools
Retiris publishes educational planning tools and analysis. Nothing on this page is personalised financial advice, and modelled scenarios are illustrations rather than predictions. See our editorial methodology and disclaimer.