# Calculate How a Stock Market Crash could affect your Retirement

How much would a stock market crash would affect your retirement if it happened right after you retire. Is your planned withdrawal rate safe enough? The returns of the first few years after you retire are the most important in calculating if your retirement savings are enough to weather a stock market crash. According to the groundbreaking Trinity Study, which gave us the 4% safe withdrawal rate for retirement, those first years after you retire will make or break your plans.

## Market Crash during Retirement Calculator Settings

 Starting Investments Total \$ Starting Annual Spending \$ Normal Stock Market Return% Annual Rate of Inflation % Market Crash takes place inyears Market Loss during Crash% Reduce Spending if Annual Spending Exceeds 4% Safe Withdrawal by%

## Market Crash Impact in your Scenario

In this scenario, your starting amount of \$1,000,000 would be enough money to fund 42 years of retirement. This scenario is not a guarantee that your savings would last that long in a real life scenario, since life is much more volatile than this simiple calculator.

Scroll up to enter changes to your scenario.

Market Crash Scenario

These numbers were calculated with a return of 7.5% for every year except the year with the market crash. Your starting spending was \$40,000 which increased at an inflation rate of 2.5% per year. If your savings did not meet the 4% safe withdrawal rate, your spending was reduced 10% for that year. 2 years into your retirement the stock market crashed 39.5%.

A special note if you're younger and trying to plot out a path to Financial Independence Early Retirement (FIRE). There are a lot of bloggers in their 30s and 40s sharing how they retired early and encouraging others to follow. Often times these people quote the Trinity Study to benchmark their plans, and one important factor that is glossed over is that the Trinity Study ends at 35 years of retirement. So if you're 35, planning to FIRE and following a 4% withdrawal rate, you are underestimating your risk of failure. A retirement account with \$1 left in it at the end of the Trinity Study simulations after 35 years is marked as a success. For you at Age 70 that could be a disaster as your investments were spent decades ago. You’ll be too old to work and your skills will probably be outdated. It is important to keep these things in mind in case you need to pursue additional streams of income to supplement your FIRE to reduce your dependence on your financial investments.

About the Settings

If you are confused about anything, play around with the default numbers and bookmark this page. Sleep on it and come back tomorrow.

Starting Investments Total : Enter the amount of investments you expect to have at the time of your retirement.
Starting Annual Spending : This is your annual spending. Enter the amount that you expect to be spending at the time of your retirement. It will be adjusted every year by inflation. You should include taxes in this.
Normal Stock Market Return : These are used in the exponential continuous compounding formula return = Principal *e^(rate * time).
Annual Rate of Inflation : This is the rate at which your spending will increase every year.
Market Crash takes place in : How many years from the start of your retirement do you want the crash to show up in.
Market Crash Percentage : How much will the market crash? For reference 2009’s great recession the market crashed the S&P500 50%+ from peak to the bottom. The Dot-Com Boom crashed the S&P500 40%+.
Reduce Spending if Annual Spending Exceeds 4% Safe Withdrawal by : This will reduce your spending in any year that you do not meet the safe withdrawal rate by the percentage. So Spending Reduced = Normal Spending * (1 + Reduction Percentage). One of the criticisms of the Trinity study is that it does not take into account people reducing their spending if their accounts have fallen. This setting gives you the ability to give yourself a low spending scenario. The default is that you would temporarily reduce your spending by 10% if your investments could not support a 4% safe withdrawal rate.

Assumptions
• Full dividend and investment re-investment.
• This does not take into account taxes, so you should build those into your spending amounts.
• This does not take into account Social Security or any other benefits that you may be eligible for, so as long as those still exist you might have some amount of a safety net once you are at an eligible age.
• The annual spending number assumes that you do not have additional sources of income besides your investments. If you would like to your other income into account, adjust your spending by the amount that would be covered by any side hustles that you might have.
• There are no further additions to your retirement account.

## One thought on “Calculate How a Stock Market Crash could affect your Retirement”

1. HECTOR CARRILLO says:

Is it Market crash a factor that you always include in your investments? How do you protect
yourself in a employment profit share environment from the 30% penalty for early retirement and a possible market crash?

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