Week 12 Day 6: The First Decade Determines Everything

Research shows that if your portfolio is larger after 10 years of retirement than it was at the start (after withdrawals), you are virtually guaranteed to not run out of money in 30 years. The first decade is when sequence risk is highest. Survive it, and the math works in your favor for the remaining 20 years.

This finding has a powerful practical implication: your risk management focus should be concentrated on the first 10 years of retirement, not spread evenly across the entire 30-year horizon. Strategies that specifically protect the first decade include: (1) the cash bucket (2-3 years of expenses in cash at retirement), (2) a slightly more conservative allocation for years 1-10 (60/40 instead of 80/20), (3) flexibility to reduce spending if the market crashes early, (4) delaying Social Security to age 70 (reducing portfolio dependence during the critical first 5-8 years), and (5) having a modest part-time income source for the first 5 years. Any combination of these reduces first-decade vulnerability. After year 10, if the portfolio has survived, you can actually increase equity allocation and spending slightly because the remaining time horizon is shorter and the most dangerous period has passed.

Kitces (2008) formalized this as the 'T-Model of Retirement Sustainability.' His analysis showed that the correlation between first-decade returns and 30-year portfolio survival is above 0.9. In other words, the first 10 years explain over 80% of the variance in 30-year outcomes. The practical implication from the T-Model is that retirement planning should be phase-based: Phase 1 (years 0-10) is the 'survive and stabilize' phase with conservative allocation, flexible spending, and alternative income sources. Phase 2 (years 10-20) is the 'growth recovery' phase where equity allocation can be safely increased. Phase 3 (years 20-30+) is the 'legacy and insurance' phase where longevity risk (outliving assets) becomes the primary concern. This phased approach is fundamentally different from the 'set it and forget it' 4% Rule and produces better outcomes across the historical distribution of return sequences.