Scared about running out of money in retirement? This doctor's repeat prescription for bear and bull markets means you'll never have to worry about it ever again


By Andrew Hallam - September 29, 2022

Shaun Murphy is a surgical intern in the Netflix series, The Good Doctor.

What makes the series fascinating is that Dr. Murphy is autistic.

He can’t read people’s faces and he struggles with empathy.

But his matter-of-fact methods make up for that. He doesn’t base surgical decisions on feelings or people’s perceived dreams. He bases them on symptoms, science and facts.

That’s why Dr. Murphy might be a retiree’s perfect guide for this awful market.

Sure, it’s hard to see your account value shrink.

From January 1st to September 26, 2022, global stocks dropped 23.68 percent, measured in USD.

Portfolios comprising 60 percent in a global stock index and 40 percent in a global bond index fell 19.9 percent over the same time period.

The media, as it always does, quotes “expert opinions” that are sought to make us panic, instead of soothing us with facts.

As far as headlines go, if it bleeds, it leads.

We’ll hear, “This market drop is different!”

But after investing for 33 years, and studying market history, I can say with certainty that every time is different. That’s what makes it all the same. Shaun Murphy would agree.

The first timeless lesson is to not 'panic-sell'. 

When stocks and bonds recover, such investors are left out.

Typically, they end up buying back at a higher price than the level at which they sold.

But because retirees are selling parts of their portfolios to cover living costs, they need to stick to a withdrawal plan based on studies and facts. The 4 percent guide is a great place to start.

Back-tested to 1926, if you had a diversified portfolio of 60 percent U.S. stocks and 40 percent U.S. bonds, you could have withdrawn an inflation-adjusted 4 percent per year and not run out of money for at least 30 years.

For example, the worst years to retire would have been 1929, 1965, 1973, 2000 and 2008.

From 1929-1932, U.S. stocks fell a whopping 87 percent. That would have turned $10,000 into $1,300 after three years of terror.

How about 1965? That would have been another horrific year to retire.

The Dow Jones Industrials didn’t exceed that level until 1982. Investors received dividends, yes, but those stock prices went 17 years without gaining ground.

Then there was 1973-1974. US and global stocks plunged almost 50 percent.

To add to a retiree’s pain, inflation soared, remaining near (or above!) double-digit levels for much of the late 1970s and early 1980s.

In 2000, US stocks began an almost three-year decline, plunging 45 percent from peak to trough.

What’s more, $10,000 in US stocks in January 2000 was worth slightly less than that, ten years later.

In 2008, the global financial crisis forced plenty of the world’s biggest blue chip businesses into bankruptcy.

I remember the markets jumping up or down 10 percent…in a single trading session.

From peak to trough, US stocks fell about 52 percent, hitting a low point in March 2009.

Plenty of retirees panicked.

But if they were calm, and withdrew an inflation-adjusted 4 percent from a diversified portfolio of index funds, anyone retiring in 1929, 1965 or 1973 would have still had money left after 30 years.

Although 30 years haven’t passed since 2000 or 2008, anyone retiring during either of those years would have more money today than when they first retired.

Each horrific market case (1929, 1965, 1973, 2000 and 2008) was different.

Each presented something that had never economically happened before. Each time was hair-raisingly terrifying, too.

This brings us to 2022.

So far, diversified portfolios of stocks and bonds haven’t fallen anything close to the nightmarish plunges that followed 1929, 1973, 2000 or 2008.

Nor has inflation come close to 1970s levels.

Yet anyone retiring at the beginning of one of those plunges would have been just fine…if they followed the 4 percent withdrawal rule as a guide.

Yes, this time it’s different. Every time is different.

But Dr. Shaun Murphy wouldn’t be affected by fear or greed. If he retired this year, he would begin withdrawing an inflation-adjusted 4 percent.

I’ll explain how this works using one of history’s worst times to retire: 1973.

Assume someone retired with $100,000.

Their portfolio comprised 60 percent U.S. stocks and 40 percent U.S. bonds.

The investor withdrew 4 percent during the first year of retirement ($4000). By December 31, 1974, their portfolio would have plunged almost 31 percent, to $69,117.

Dr. Murphy wouldn’t have attached feelings to market movements. He would have stuck to a plan based on economic science.

In the second year of retirement (1974) he would have withdrawn more than $4000…to cover the rising cost of living.

That year, he would have ignored the media, his plunging portfolio value and withdrawn $4,348. In 1975, he would have withdrawn $4,885. That’s because the cost of living (inflation) increased by 12.85 percent in 1974.

After keeping this up for 30 years, Dr. Murphy would have withdrawn a total of $332,321 from his original $100,000 portfolio.

Yes, you read that right. He would have withdrawn more than he initially retired with, and by 2003, his portfolio would have been worth $230,416. That’s more money than he would have had when he first retired.

The 4 percent rule was back-tested using U.S. stocks and U.S. bonds.

Despite their often-terrifying ups and downs over the past 100 years, they performed well.

Global stocks performed well, too.

But withdrawing an inflation-adjusted 4 percent from a portfolio of global stocks and bonds wouldn’t have worked during every rolling 30-year period.

Shaun Murphy would know this. He would also know that stock market returns are unpredictable.

Nobody knows which markets will perform best in the future, so Dr. Murphy would own them all.

And, like an unexpected, arterial bleed during surgery, Dr. Murphy would have a plan for when things went south.

He would withdraw less during years when his portfolio dropped.

For example, if a retiree withdrew $50,000 last year, and their portfolio dropped in 2022, they might tighten their belt and withdraw 10 percent less this year, or $45,000.

Doing so, during down years, would increase the odds of the money lasting 30 years.

After the portfolio had a couple of good years, someone like Dr. Murphy would boost those withdrawals, likely based on a strategy I described here.

This is simple. It’s mechanical. It’s objective.

Unfortunately, too many retirees freak out when markets fall.

They shift their allocations, or they sell everything and jump into cash.

Instead, when it comes to investing, retirees should shove their emotions in a box.

They might not be autistic, like Dr. Shaun Murphy.

But playing that role would certainly help a lot.

We fit broken portfolios - Sam (LIGHT) smile

Andrew Hallam is the best-selling author of Millionaire Expat (3rd edition), Balance, and Millionaire Teacher.