The Market Keeps Hitting Records – And Most Retirees Are Still Nervous
The S&P 500 crossed 5,500 in early 2026, and financial media lost its collective mind. Again. Record highs, breathless headlines, experts patting themselves on the back. But here is the question almost nobody asks: what does that number actually do for you?
If you are a retiree – or plan to be one within the next decade – the answer is probably “not much.” The market’s level is a snapshot, not a paycheck. And the uncomfortable truth is that most people approaching retirement are far less prepared than their account balances suggest.
Here is why.
The 4% Rule: A Nice Theory That Falls Apart in Practice
You have heard it a thousand times. Withdraw 4% of your portfolio each year, adjusted for inflation, and you will be fine. The rule was born from a 1994 study by William Bengen, based on historical returns from a very specific period. It became gospel. Advisors repeat it like it is physics.
But the real world does not care about academic studies.
Most retirement portfolios generate less than 2% in actual spendable income – dividends and interest you can live on without selling anything. That gap between what your portfolio produces and what you need to spend is where everything falls apart. To bridge it, you sell shares. And once you start selling shares in a flat or declining market, you are eating your own seed corn.
The math is ugly, and it has been ugly for a lot longer than most people want to admit.
What Actually Happened to a Million-Dollar Portfolio Over 25 Years
Let us walk through the real numbers. Imagine it is January 2000. You have got a million dollars in an S&P 500 index fund, and you are ready to retire. You follow the 4% rule and withdraw $40,000 your first year, adjusting for inflation each year after. Here is the reality check:
- 2000-2002 (the dot-com bust): The S&P 500 lost roughly 47% from its peak. Your million shrank to about $530,000, but you kept withdrawing. By the end of 2002, after three years of drawdowns and market losses, your portfolio sat near $450,000.
- 2003-2007 (the recovery): The market clawed back, and by October 2007, the S&P had nearly doubled from its 2002 low. But you had been spending the whole time. Your portfolio recovered to maybe $620,000. Still down 38% from where you started.
- 2008-2009 (the Great Recession): Another 50%+ drop. Your $620,000 got hammered down to roughly $310,000. And you still needed $40,000+ per year to live on. Now you are selling shares at fire-sale prices just to buy groceries.
- 2010-2019 (the long bull run): The longest bull market in history. Your portfolio finally clawed back. By 2019, 19 years after you retired, you might have been sitting around $700,000. Still below your starting point, and your inflation-adjusted withdrawal is now closer to $60,000 per year.
- 2025-2022 (COVID crash and inflation surge): A 34% crash in five weeks, a rocket-ship recovery, then another rough 2022 with the S&P down 19%. Inflatio
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- 2023-2025 (the AI boom): Massive gains driven by tech and AI hype. The S&P 500 surged past 5,000, then 5,500. If you survived this long, your portfolio probably recovered to the $750,000-$850,000 range. But you have been retired for 25 years, your withdrawals have nearly doubled due to inflation, and you are still below where you started.
The S&P 500 averaged roughly 7% annually from 2000 through 2025, including dividends. Sounds decent. But a retiree withdrawing 4% adjusted for inflation experienced something completely different – and far worse – because the order of returns matters more than the average return.
This is called sequence-of-returns risk, and it is the silent killer of retirement plans. Big losses early in retirement, when your portfolio is largest and your withdrawals are just beginning, do damage that no subsequent bull market can fully repair.
The NASDAQ Was Even Worse
The NASDAQ Composite hit 5,048 in March 2000. It did not see that number again until 2015. That is fifteen years of going nowhere. If you had retired in 2000 with a NASDAQ-heavy portfolio, you would have spent more than a decade watching your net worth evaporate. Even with the spectacular gains of the past few years – driven largely by a handful of mega-cap tech stocks – the NASDAQ’s annualized return over that full 25-year stretch barely clears 6%.
Why the “Averages” Lie to You
Here is the trap. Your financial advisor shows you a chart. “The market returns an average of 10% per year over long periods,” they say. “Stay the course.” And that chart is technically accurate. But it is also dangerously misleading for anyone who needs to actually spend from their portfolio.
Averages mask devastation. If your portfolio drops 50% one year and gains 50% the next, you are not back to even – you are down 25%. Add withdrawals on top of that and the damage compounds in the worst possible way.
The S&P 500 has experienced a correction of 10% or more in roughly 30% of all calendar years since 1950. Bear markets (drops of 20%+) occur about once every six years. These are not anomalies – they are the normal rhythm of the market. And every single one of them threatens to permanently impair a retiree’s standard of living.
What About Higher Withdrawals?
Four percent was supposed to be conservative. But life does not respect conservative estimates. What happens when you need a new roof? Or your spouse has a medical emergency? Or your property taxes jump 30% in three years, as they have in many parts of the country since 2025?
Real retirees often need to withdraw 5%, 6%, or even more in certain years. Each extra percentage point of withdrawal dramatically increases the odds of running out of money. A study by Morningstar in 2024 suggested that the “safe” withdrawal rate for a 30-year retirement might actually be closer to 3.7% given current valuations and interest rate levels.