I'm confident that another crash is inevitable at some point.
Yeah it will. They're a part of life. They will happen dozens more times in our lifetimes. It's healthy and to be expected.
I suggest you read Jim Collins' stock series to get a better understanding. ;)
http://jlcollinsnh.com/stock-series/I have run many, many FIRE calculators to see the possible outcomes, and suggest anyone thinking of FIRE do the same. CFIREsim, FIREsim, Fidelity's RIP (although I think they have just updated it and changed how it works)... all give you a better handle on historic investment outcomes on your specific allocations might turn out.
I retired in the spring of this year.
I was the breadwinner and we lived off of my salary (less maxed 401k/IRAs for the both of us) and some surplus to go towards savings. Husband's salary was completely funneled into savings and investments. We have approximately 2 years worth of living expenses in a high yield savings account and the rest in investments (indexed mutual funds).
I am currently in "training wheels phase" in that the husband is still working, so his salary is providing the living expenses.
So what happens when husband retires in the new year? We live off of investments (selling off some of the well-performing ones every quarter as necessary to fund expenses) as long as the market is moving upwards. If it starts a downward trend (correction/crash) then we live off the cash savings until such time as the market recovers. At that point, we revert to living off of the (recovered) investments and replenish the cash reserves.
Dr. Doom posted a nice explanation of how this works (
http://livingafi.com/ and check out Drawdown scenarios in the post collections tab).
Our back up plans are similar to Dr. Doom's - cut back on expenses if needed, cut to bare bones expenses if still needed, and then consider going back to work at something - either part time or full if necessary for a year or two. I would much rather quit my job now and get a no-brainer part time job 5 years down the road if absolutely needed (and it is doubtful actually based off of all of the calculators - 95% success rate means that we should never have to work again).
After a certain point, a portfolio gets to be too big to fail. As long as you don't inflate your living expenses, (and usually they go down as you age anyway) even suffering a loss of 50% won't cause you to lose everything. For example, we live off of about 30K a year, so we need 750K minimum to supply the 4% safe withdrawal rate. Well, once my portfolio grows up past 1.5 mill or so, I can afford to lose half my portfolio and not adjust my living standards at all.
I get that market crashes are great times to buy more funds. However, once you've lost those hundreds of thousands of dollars, it'll take a decade for the market to recover. And your early retirement is now delayed for perhaps a decade or more.
A decade to recover? Nope. Even the Great Depression recovery average was around 7 years and that was catastrophic and unlikely to ever happen again with all the safeguards in place. We just had a pretty awful crash in 2007/8 and most folks were fine even a year later and this last bull run was hitting amazing highs. Unless you're doing something really dumb with your money, like panicking and pulling out into cash? Well, yeah, that would mess up FIRE plans pretty quick.
http://money.cnn.com/2015/02/26/investing/stock-market-crash-bubble-investing/Most all of the historic crashes recover within a year or two; so just leave it be, and keep investing. If you're already FIREd, then just keep an eye on expenses and be prepared to dip into cash or rely on your alternative streams (like real estate or getting a part time job). You'll still have the shares and they will recover their value and more so. (seriously, read Jim Collins series - especially the first 6 or so posts and you should get a better grip on this stuff).
