The Sequence of Return Risk

Transcript

[00:00:03] You could have the same average return as your neighbor in retirement and still run out of money 10 years earlier. This is Antwone Harris with Platinum Bridge Wealth Strategies, and I want to talk to you about a hidden risk to your retirement longevity that you may not be aware of is called sequence of return risk.

[00:00:24] It is not just how much your portfolio returns, but when those returns occur, that could cause you to run out of money in your old age if you don't have a reasonable plan around dealing with the sequence of return risk. So let me outline an example.

[00:00:39] Let's say you retire with a $2 million portfolio. And you need to withdraw $100,000 a year to maintain your lifestyle in retirement, and we're expecting an average return over time of 4.65%. In this example, over a 20 year period, you can see the difference between a retiree that experiences some good years at the beginning, which is represented by the orange Line, and a retiree that experiences some bad markets at the beginning of their retirement, which is represented by the blue line. As you're pulling that $100,000 a year from that retirement portfolio, the blue line represents that you really start to deplete those assets significantly. The reason this is so important and so impactful is because as the markets recover, your principle balance is being compressed- it's depleting, and you don't have the same amount of assets available when the market recovers.

[00:01:35] So you're losing in the down years and you're withdrawing, and then during the recovery, you're not able to fully participate. That dynamic over time can cause you to run out of money toward the end of your life.

[00:01:46] So what do we do about this sequence of return risk problem that you may face in retirement?

[00:01:52] The first thing we want to have very specific income withdrawal strategy to prolong the useful life of your assets over time. We can also look at something called a dynamic bucket strategy or a tax location strategy. So several different ways we can approach this and deal with this risk.

[00:02:10] If you're five years out from retirement or just entering retirement and you have at least a million dollars to invest to support yourself through retirement, this is an ideal time to stress test your portfolio, to see how your assets respond to this sequence of return risk. Drop me a message. Reach out to me directly.

[00:02:30] I'm happy to model some things for you and show you what we do for our clients to help mitigate this risk. This is Antwone Harris with Platinum Bridge Wealth Strategies, and I'll talk to you soon.