A Case Study in Sequence Risk: A 20-Year Retrospective on the Impact of the 2000–2002 and 2007–2009 Bear Markets on Retirement Nest Egg Sustainability

Abstract

The first decade of the 2000s saw two prolonged bear markets, both of which produced declines of over 50% in value in the S&P 500 Index from peak to trough. In total, the ten-year period from March 1999 through February 2009 saw the stock market lose more than 30 percent of its value. This period represented the worst decade for the US stock market since the Great Depression. For consumers who had the misfortune of retiring in 1999, this “lost decade” embodied the definition of sequence of returns risk. Researchers at the time could only speculate as to the impact such sharply negative returns might have on the long-term sustainability of retiree spending portfolios.