Subject: Re: Have about 2.5 years of cash left for expenses
The people who worry about "sequence of return risk" are thinking that the first year of retirement is the only year of concern.
What's the difference between a 30% loss in the 1st year of retirement and a 30% loss in the 20th year of retirement? None. The year after the loss is the first year of the rest of your portfolio. There is nothing special about the first year...
Where the sequence of return risk is actually important is when you retire on a shoestring and a large loss will drop the portfolio value below the "safe" level. So don't retire with barely enough money.

I certainly agree with the conclusion.

But the first part isn't really right.
The first year of your retirement IS unique, as it is the only year which is immediately after your decision that the portfolio can support you from then on with a given withdrawal plan.

In year two (or three or four...), you can't make that decision. It has already been made, and the money available may have changed a lot based on what has already happened.
A plan that "probably" would have worked as seen from year 1 may now be a definite failure.

Now, I agree that it's not the big deal it's made out to be, because the only time it matters is AFTER you have made a really stupendously bad retirement portfolio plan.
You picked a fixed-dollar withdrawal amount that your portfolio couldn't reliably support.

But the sequence of return problem is a real one.

Consider two sequences with the same overall CAGR:
Number one is -20% for five years in a row, +30% for the next five years, and 2%/year for the next decade.
Number two is +30% for five years in a row, -20% for the next five years, and 2%/year for the next decade.

If this portfolio has a too-aggressive withdrawal plan in fixed dollars, the first one may run out of money whereas the second one doesn't with the same withdrawal plan.
It doesn't fail because of the overall portfolio CAGR or because of longevity, but because of the bad luck of the *order* of withdrawals.
In the first sequence, a 4% withdrawal plan will run out of money in year 20.
In the second case, it will still have 74% of the starting balance at year 20.

Which only matters if you have already made a dumb plan, making such a failure likely, but it is a real failure, and it does indeed depend critically on the sequence of returns alone.
So...it's a thing you only worry about when it's the result of a prior bad decision.
But it's a real thing.

If your tires aren't strong enough to drive at 150 MPH, a blowout is a real risk which might happen or might not and is worth understanding.
But the whole thing is moot if you're smart enough not to drive at 150MPH in the first place.

As you in effect note, a small portfolio can not reliably support a large fixed-dollar withdrawal plan.
And picking the biggest withdrawal number that would always have worked in the past is not going to work either.
The sequence of historical returns that the world has seen is not a good guide to the maximum range of what CAN happen.

Jim