No worries really - this is why. If your investment portfolio is in stocks and bonds, you can count on about 3% return from dividends and interest alone. You are counting on only 25% of your income to be dependent on the value of your portfolio. This means that a 30% drop in the markets doesn't lead to a 30% drop in income, but instead something closer 7%. Now you could sell more of your portfolio in a down year to close this gap, but I hope anyone considering FIRE can also weather a 7% drop in spending if needed as well.
Here's a simple sample portfolio showing this, using 12-month distribution yields from the top of the market (at least the best I remember them to be) - 70% VT (yield = 2.3%) 15% BIV (yield = 2.7%) 15% PGX (yield = 6%). This gets you a yield of 2.92%. So if your investment portfolio is $2M, then you can count on about $58k in income coming in no matter if the market is up or down. If you were planning on a 4% SWR, you have over 70% (2.92%/4%= 73%) of your projected income already taken care of with just dividends and interest. This leaves the remaining 27% of your projected income stream subject to movements in value, meaning that you were planning on selling 1.1% of your portfolio to achieve a 4% SWR. For a $2M portfolio, that would be $22,000. So let's say that stocks drop 40% while bonds rise just 5% in a significant down turn. Assuming a 70/30 asset allocation, this means your net worth is down about 27%. The stocks and bonds that you would have sold at the top of the market for $22,000 now only get you $16,000. If you put this together with what you got in dividends and interest, your annual income is still $74,000. Compared to the $80,000 a 4% SWR projects, this is only a decrease of about 7%.
If this level of risk still doesn't feel good, maybe target a SWR of 3.5% or less. At a 3.5% SWR, only 17% of your income stream is subject to market valuations. At 3.25%, it is just 10%. While I talked about stocks and bonds here, this same analysis can be applied to income real estate or anything else.
But what about a true market cataclysm where dividends are getting cut? If that is the case, your cost of living is also probably dropping as companies discount their prices to stem weak demand. You'll find your property taxes go down, as do other costs like gas and household goods. You desire for discretionary spending will also likely decrease - that just seems to happen when everyone is talking about the bad economy. Take the time to figure out what your budget is in a normal year, and then what it would be if you just focused on the necessary expenditures and adjusted for some of the costs that are likely to drop.
Finally, remember to also plan on multiple buffers to protect your standard of living - MMM does a great job of talking about this in his posts. Flexibility is key for FIRE (or just assume a 3% SWR or less).
Hope this helps.