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Retirement Income and Sequence of Return Risk

Imagine this scenario: you have diligently saved and invested and are counting down the days to your 2022 retirement. 2 years into your retirement the economy tanks majorly. You are no longer employed and don’t have any other income sources.

You were expecting to draw down 4% every year from your portfolio and could have gotten by on 3.5% if needed. With your $2.3 million retirement balance, this left you with $80,000 a year of income – $60,000/year, after all accounting for taxes and investment fees.

The economy as a whole crashed because of a change in global political sentiment towards the US. The world started losing faith in the US economy and inflation set in. Bond values tanked and so did the income for the US. In 2024, Congress was talking about major tax reform to coagulate the bleeding.

Such a scenario is referred to as a sequence-of-return risk; you retire, hoping that your investment portfolio will perform expectedly for a few more years. Instead, your investments drop in value by 40%. You are forced to cash out quite a bit of your portfolio which jeopardizes the longevity of your investment portfolio.


Sequence-of-Return Risk

Take 2 doctors who both retire in their late 60’s. Both give up their medical licenses and were sole breadwinners for their family

Doctor #1 retires during a healthy bull market where the investment are going up, up, up. Her investment portfolio remains strong for nearly a decade into retirement. By the time she’s in her mid-70’s her spending has mellowed out. She’s in cruise control. Her household is doing well financially. Not to mention, her investment portfolio size is bigger than it’s ever been even though she’s spending down at a rate of 4.5%.

Doctor #2 retires at the beginning of a bear market; the market is flat at first and then just crawls downward for 3.5 years. He gives up his medical license and embarks on retirement just to see his investment portfolio go down. He is only spending 3% but it’s still too much. His net worth is going down. He’s forced to cut spending by 1/3rd or risk the longevity of his retirement.

Predicting the Market

We know that in 2019 the markets are overvalued. But they could remain overvalued for another decade. Nobody can say for certain when the next crash will take place. We can’t predict the markets.

It’s said that no investor can successfully time the market. That’s incorrect. Investors have successfully timed the market ever since there was a market to speak of. It’s just that short-term timing is too volatile to rely upon while long-term timing tends to succeed.

Market Timing

If I knew that my investments are about to enter a bear market, cutting the value of my investments by 40-50%, I likely would continue working for a few more years.

One option is for the retiree to keep their medical license active. That way, if needed, they can return back to work if they hit the unlucky retirement pothole. Even if the portfolio tanks, it will likely recover within a few years.

The downside is that they will need to work another 4-5 years just to go back to their baseline. For someone who has been looking forward to their retirement for a few decades, an extra 4-5 years is a massive chunk. So the late retiree has a big disadvantage here.

4-5 extra years of work for the traditional retiree, when you only have another potential 25 years left on this earth, is a huge percentage. Working that extra 4-5 years when you’re only 40 isn’t as big of a haircut.

Reducing Volatility

Michael Kitces makes the argument that one way to decrease the risk of a poor sequence of returns is to decrease the volatility of one’s portfolio closer to retirement. But then we are, yet again, talking about market timing.

It’s a viable option, don’t get me wrong. But I don’t want to flip my investments from stocks to bonds, from real estate to CD’s, or another another such conservative move, unless I have no other options.

The fact that I’m retiring early, the fact that I’m maintaining some income potential in retirement, gives me all of the options I want. I can certainly decrease my volatility a little but don’t have to chop it off at its roots.


Retirement Income and Sequence of Return Risk

The advantage of having income in retirement is that you can pull the plug on work much sooner than your colleagues. As soon as you are financially independent, you can continue to work or you can stop working.

Depending on how the market is performing, you can fund your lifestyle with investment income or with earned income.

You don’t have to work full-time. You don’t even have to work in healthcare. You could earn income from all sorts of interesting sources. Income is income. Money is fungible.

Very Little Income

Having income retirement adds an extra layer of redundancy and security to your retirement plan. It doesn’t have to taste bitter. You need very little income to make up for the sequence of return risk.

Should the economy tank, should your investment portfolio drop by 40%, you can choose to up your earned income. Some months you’ll have no earned income, as is the case with entrepreneurial ventures in retirement. Other months you won’t need to touch your retirement accounts at all.

Any extra money you earn can also go towards investing in this new down-market. You can buy investments at bargain prices. Or you can build up a healthier emergency fund for your household.


Retirement Income Options

I prefer entrepreneurial income sources in retirement because I get to have more control over the earnings. But many physicians can achieve the same by doing the occasional hospital shift. Maybe doing some telemedicine. Or, of course, healthcare consulting.

I’ve created a great tutorial for doing telemedicine while traveling abroad. And I have created a course for getting started in healthcare consulting. Either of these options can be lucrative income sources in retirement.

Real Estate Investing

Some docs are eager to get started in real estate investing as soon as they get their attending badge. I hear from some that it’s completely passive income and very little work goes into it. Others tell me that it’s like passing a kidney stone.

Don’t fear, my dear, real estate will always be here. There will always be an opportunity to invest in real estate. I’m 41 and retired and can go buy a duplex in Michigan tomorrow in cash and rent it out for an income stream.

Real estate crowdfunding also seems very hot right now. It’s not my cup of tea but if you can see all of the angles, why not!


I like telemedicine as an income source for physicians because you can use technology to reach a bigger audience. You don’t have to work for a prescription mill like Roman or Teladoc. You can work for enlightened and sustainable companies like Oscar.

Or you can start your own. No doubt that you have friends and family or group of patients who would benefit from your expertise. You can serve them while sipping your Estrella in España. I wrote an informative piece on VSee which is a very low-cost way for you to start your own telemedicine platform from scratch.

I’m excited for the day when telemedicine branches out into chronic disease management. Imagine supervising a patient virtually to help them lose weight, manage their medications, and improve their A1C’s and lipid panels.

Healthcare Consulting

You might be a doctor who is passionate about hospice care. Maybe you have ideas how to provide more hospice access for patients. Maybe you want to build protocols for growing hospice services.

You can hone your skills as a healthcare consultant and make good money doing it. It’s a great way for a physician to give back to healthcare. We have a lot of detailed knowledge which healthcare startups can use to create better products and services.

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