Jay Winestein discusses how a sequence of returns can affect a retiree.
Listen to the interview on the Business Innovators Radio Network:
The sequence of returns issue, the order of the returns in a portfolio, can become problematic for a retiree when they call it quits and retires and then needs to draw a regular income from the investment account.
In particular, problems can occur when there are losses or lower returns than the withdrawal rate plus fees. For example, when a portfolio loses 10% and the withdrawal is 5%, with a 1.5% fee, there’s a 16.5% drop in the account. The following year’s return would need to replenish 16.5% plus the following year’s 5% withdrawal, preferably indexed for inflation plus the fee, to square up and be even.
And so on for subsequent years.
There’s now a higher demand for a continued favorable “sequence of returns” to keep an account “green” as the account is charged to provide paycheck replacing income rather than simply accumulate without the withdrawals. Over time, the math of it – the ups and downs of the returns may or may not work out in the retiree’s favor.
Jay explained: “The risk of unfavorable sequences could cause damage to a retiree’s ability to sustain regular income, indexed for inflation, especially if a surviving spouse lives past life expectancy.
By understanding the sequence of returns, retirees can better prepare themselves for whatever market conditions they may face in retirement and create a well-diversified portfolio that can withstand periods of turbulence. Understanding this concept is vital to have a secure retirement plan.”
Video Link: https://www.youtube.com/embed/n7y9Sm68a7k
About Jay Winestein
Jay Winestein helps retirees get more income using several powerful and time-tested strategies. His unique message, based on his years in the small business pension space, uses the same actuarial (pension) tables and calculations that large corporate pension designers use. It can add peace of mind in retirement.
Book a Call with Jay: https://calendly.com/jay-winestein/retirement-evaluation-with-jay
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