Using Simba's Backtesting Spreadsheet, you can simulate retiring in any year, with a 4% SWR, for 30 years. You can simulate different stock/bond splits, and even different linear glide paths. Then you can pick the one with the least chance of running out of money.
And when you do, which starting year is worst? Drum roll please ... 1966!
1966 - 1985
4% SWR for 30 years requires your portfolio to gain 1.31%/year, 14%/decade. Here's a dollar invested in the S&P 500 over the first 20 years:
Yikes! Not only does it not gain 14% per decade, it doesn't break even, for good, for 17 years, when you're 82 years old! So what if you take 4% out every year?
Half way through your retirement, your nest egg is 76% gone!
But bonds will save us, right? After all, they're the safe, conservative investment to turn to during dark times. Plus, they're supposed to go up when stocks go down.
By 1981, bonds have lost more than stocks -- these are inflation adjusted numbers -- and seem very correlated:
- 1966 - 1968: move in opposite directions!
- 1969: both go down
- 1970 - 1972: both either go up or are flat.
- 1973 & 1974: both go down.
- 1975 & 1976: both go up.
- 1977 & 1978: both go down.
- 1979 & 1980: they go opposite directions!
- 1981 - 1985: Both move the same direction.
1912 - 1931
The second worst span of 20 years was 1912 - 1931. I'll spare you the graphs, and instead quote the Bureau of Labor Statistics:
Stocks lose 1/3 of purchasing power in 1917 alone. There's a nice rally from 1921 - 1929, but we all know what happened in 1929. 55% of stock purchasing power wiped out in 3 years.The World War I era and its aftermath, 1917–1920, then produced sustained inflation unmatched in the nation anytime since. Prices rose at an 18.5-percent annualized rate from December 1916 to June 1920, increasing more than 80 percent during that period.
There's a light recession from 1912 - 1914, where stocks go down and bonds go up, so yay for diversification! But during WWI everything goes down. During the roaring '20s everything goes up. Luckily, during the Great Depression, bonds actually go up.
Data: Simba's Backtesting Spreadsheet, tab Data_Series, columns LCB for Large Cap Blend (the S&P 500), and TBM for Total Bond Market. Inflation adjusted real returns.