Why a bad decade breaks otherwise solid FIRE plans
Many FIRE plans look bulletproof on a spreadsheet because they lean on averages: average market returns, average inflation, and an assumed steady timeline. The problem is that retirement math is not average-based. It is sequence-based.
In the safe-withdrawal research, the key risk is not just what return you get, but when you get it. Early bad returns and early inflation can do disproportionate damage because withdrawals lock in losses and shrink the base your portfolio can recover from. That core idea is why a “bad decade” stress test matters.
Think of this as an engineering check, not a doom forecast. You are not trying to guess the next 10 years. You are trying to make sure your plan still works if the next 10 years are messy.
How to use this stress test (and what it is not)
Use the questions below as a checklist. For each one:
- Answer with a number or a clear yes/no.
- Identify your single biggest weak point.
- Add one mitigation that is realistic for your lifestyle.
Important: This is educational content, not personalized financial advice. The ranges and benchmarks are starting points to customize based on fixed costs, health risk, dependents, job stability, and your own risk tolerance.
Quick scorecard (jump to any question)
- Sequence plan: What spending cuts trigger if markets drop early?
- Inflation shock: What if inflation spikes for 2-3 years?
- Adaptive withdrawals: What rules change your spending when conditions are weak?
- Liquidity: How many months of true emergency cash do you have?
- Job shock: How long can you run if income disappears?
- Healthcare: What is your plan if costs jump?
- Longevity: Are you planning for the longer-lived partner?
- Concentration: How correlated are your job and portfolio?
- Behavior policy: What is your rebalancing and contribution rule in a crash?
- Stacked risks: If multiple things go wrong, what lever do you pull first?
The 10 questions
1) If markets drop early, what is your spending cut plan within 30 days?
What to check:
- Your first-line “bad year” budget: what you can cut quickly without breaking your life.
- The percent reduction you could sustain for 12-24 months if needed.
Why it matters:
Historical withdrawal simulations show that early poor returns can reduce sustainability even when long-run averages look fine. This is the sequence-of-returns problem: the same average return can produce very different outcomes depending on the order of returns.
Mitigation:
- Create a two-tier budget:
- Core: housing, food, utilities, insurance, basic transport
- Flexible: travel, dining, upgrades, subscriptions, hobby splurges
- Starting benchmark (customize it): identify a flexible-cut range you could trigger quickly (often something like 10-25% depending on fixed costs).
- Write the trigger in one sentence: “If my portfolio falls X% from peak, I reduce spending to core + pre-approved flex.”
2) What happens to your plan if inflation spikes for 2-3 years?
What to check:
- Run your plan with a higher inflation assumption for a short burst (not forever).
- Identify which expenses are most inflation-sensitive (food, utilities, insurance, rent).
Why it matters:
Inflation is not smooth. CPI-U shows multi-year stretches of very different inflation rates across decades, which is why a single average inflation assumption can hide real stress.
Mitigation (illustrative examples, not recommendations):
- Increase your “inflation shock” buffer: extra cash-like reserves or short-duration, higher-quality holdings that cover a year or two of spending.
- Consider inflation-linked instruments where appropriate and available to you (for example, TIPS; and I Bonds for those eligible), but keep the goal neutral: reduce inflation sensitivity, not chase a product.
- Add a policy: “During inflation spikes, pause lifestyle upgrades and re-price my core budget quarterly.”
3) What is your withdrawal strategy when returns are weak?
What to check:
- Are you assuming a constant withdrawal rate no matter what?
- Do you have guardrails (increase/decrease rules) tied to portfolio health?
Why it matters:
The original safe-withdrawal framing warns against relying on average conditions. Your plan needs a mechanism that adapts when conditions are not average.
Mitigation:
- Use simple guardrails:
- If portfolio is above a high band, allow small raises.
- If it falls below a low band, cut to your core budget.
- Keep it behavioral: choose rules you will actually follow, not optimal rules you will abandon in stress.
4) How many months of true emergency liquidity do you have, separate from investments?
What to check:
- Liquid funds you can access in days without selling volatile assets.
- Include deductibles and out-of-pocket max considerations if relevant.
Why it matters:
In the Federal Reserve’s 2024 SHED results, 63% of adults said they would cover a $400 emergency expense using cash or its equivalent. This is not a comparison to FIRE households, just a reminder: liquidity shortfalls are common and worth engineering against.
Mitigation:
- Starting benchmark (customize it): aim for a multi-month buffer that reflects your fixed costs and job stability.
- Separate “emergency liquidity” from “opportunity cash.” The first is for survival and sleep, not market timing.
5) If you lose your job (or your spouse does), how long can you run without changing the plan?
What to check:
- Your income shock runway: months you can cover expenses without panic selling or debt.
- Whether you can handle a longer job search or a lower reemployment wage.
Why it matters:
Job loss is not rare, and reemployment is not always immediate. In BLS displacement data for long-tenured workers displaced from Jan 2021 to Dec 2023, 2.6 million workers were displaced. As of Jan 2024, 65.7% were reemployed, 16.1% were unemployed, and 18.2% were not in the labor force. That spread is a reminder to model a real gap, not a one-month hiccup.
Mitigation:
- Starting benchmark (customize it): build a job-loss runway that matches your industry volatility and household fixed costs.
- Add a “bridge income list”: 3-5 realistic options (contracting, consulting, part-time, seasonal, adjacent roles).
- If you are close to FIRE, treat job loss as a primary risk, not a footnote.
6) If healthcare costs jump, what is your specific plan?
What to check:
- Your current premium, deductible, and out-of-pocket max.
- What changes if you stop employer coverage or relocate.
Why it matters:
Healthcare is one of the fastest ways for a plan to drift from spreadsheet assumptions. A bad decade can include a health event, not just a market event.
Mitigation:
- Keep a dedicated healthcare buffer line in your plan.
- Decide in advance what you would change first: travel, housing, or discretionary spend.
- Revisit annually, because healthcare details change.
7) Are you planning for the longer-lived partner, not the average person?
What to check:
- Your planning horizon in years, especially if retiring early.
- Whether survivor spending and benefits are modeled.
Why it matters:
Longevity risk is a quiet plan-breaker. In the 2022 SSA period life table, remaining life expectancy at age 65 is 17.48 years for males and 20.12 years for females. Early retirement can easily stretch horizons to 40-50 years for couples when you plan for the longer-lived partner plus uncertainty.
Mitigation:
- Choose a horizon that respects the tail: plan longer than you think you need.
- Consider phased work, delayed big fixed costs, or annuity-like income later in life if that fits your philosophy and needs.
8) How concentrated is your portfolio and your income exposure?
What to check:
- Single-stock risk, employer stock, sector concentration.
- Single-industry job risk (especially in cyclical sectors).
Why it matters:
A bad decade often hits concentrations harder than diversified baskets. Concentration can also create correlated risk: your job and portfolio both decline together.
Mitigation:
- Reduce correlated exposures over time.
- If you keep concentration intentionally, pair it with larger buffers and stronger spending flexibility.
9) What is your “bad decade” rebalancing and contribution rule?
What to check:
- Do you know what you will do if stocks drop 30-50%?
- Will you rebalance, pause, or panic?
Why it matters:
A plan that depends on perfect behavior is fragile. You want a default action that is simple and pre-decided.
Mitigation:
- Write a one-page policy:
- Rebalance schedule (time-based or threshold-based)
- Contribution priority (cash buffer first, then investments)
- No major strategy changes during a drawdown window unless fundamentals change
- Quick caveat: account types and taxes can change the “best” move, so write a policy you can execute within your actual account setup.
10) If everything goes wrong at once, what is your first lever?
What to check:
- Your single best “pressure release valve”: spending cuts, temporary work, relocation, housing downsizing, or delaying retirement.
Why it matters:
Stress is rarely isolated. The “bad decade” is often a stack: weak returns plus higher inflation plus an income disruption. Your plan should have at least one lever you can pull quickly.
Mitigation:
- Pick one lever and operationalize it:
- If it is spending: define the list and the trigger.
- If it is income: define the job types and the outreach plan.
- If it is housing: define the timeline and the price point.
Turn fragile answers into a plan (the 30-minute upgrade)
Step 1: Circle the two questions that would break your plan fastest.
- One should be market-related (sequence, inflation, spending flexibility).
- One should be life-related (job loss, healthcare, longevity, concentration).
Step 2: Add one buffer and one flexibility lever.
- Buffer examples: more emergency liquidity, a larger healthcare reserve, a bond/cash sleeve sized to your core budget.
- Flexibility examples: a written spending cut plan, a part-time income option, delaying one big upgrade.
Step 3: Write your decision policy in plain language.
Example:
- “If portfolio is down 20% from peak, I move to core budget for 6 months.”
- “If I lose income, I pause extra investing and live off the runway while I execute my bridge income list.”
- “If inflation spikes, I re-price the budget quarterly and pause upgrades.”
This is what makes a stress test useful: it becomes a behavior plan, not just a spreadsheet.
Optional: Run this in a scenario tool
If you want to go from checklist to numbers, a scenario tool can help you test:
- A bad sequence early in retirement
- A 2-3 year inflation spike
- A multi-month job gap
- A longer-than-expected retirement horizon
What to compare (neutral criteria):
- Can you model variable spending rules (guardrails) instead of fixed withdrawals?
- Can you add one-time shocks (health event, big repair, job gap)?
- Are assumptions transparent (fees, inflation, taxes, return distributions)?
- Does it produce a simple plan you can follow?
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Sources and further reading
- Bengen, William P. 1994. Determining Withdrawal Rates Using Historical Data. Journal of Financial Planning. (Used for the framing that average returns and average inflation are not a sufficient basis for safe withdrawals.)
- Cooley, Philip L., Carl M. Hubbard, and Daniel T. Walz. 1998. Choosing a Withdrawal Rate That Is Sustainable. AAII Journal. (Used for historical simulation framing: outcomes vary across sequences, rates, allocations, and horizons.)
- Pfau, Wade D. 2015. The Lifetime Sequence of Returns: A Retirement Planning Perspective. SSRN working paper. (Used for the broader sequence-risk point: identical saver behavior can produce different lifetime outcomes due to return order.)
- Federal Reserve. 2024. Economic Well-Being of U.S. Households in 2023 (SHED). (Used for the 2024 table result that 63% would cover a $400 emergency expense with cash or equivalent.)
- Bureau of Labor Statistics. 2024. Displaced Workers Summary and related tables for Displaced Workers, 2021-23 (long-tenured workers). (Used for displacement count and Jan 2024 labor force status outcomes.)
- Social Security Administration. 2022. Period Life Table. (Used for remaining life expectancy at age 65: 17.48 years male, 20.12 years female.)
- FRED, Federal Reserve Bank of St. Louis. CPI-U: Consumer Price Index for All Urban Consumers (Series ID: CPIAUCSL). Accessed 2026-02-16. (Used to support that inflation varies meaningfully across multi-year stretches and decades.)
