The real risk: sequence-of-returns

Sequence-of-returns risk is a well-documented, real phenomenon: a market downturn in the years just before or after you retire can permanently reduce how long your savings last, even if average long-term returns are the same as someone who retired at a different time. This is genuinely one of the more dangerous, underappreciated risks in retirement planning.

Why urgency-driven, single-asset moves aren’t the standard fix

The standard, professionally-recommended responses to sequence risk are things like holding a cash/bond buffer for near-term withdrawals, adjusting withdrawal rates in down years, and diversifying across asset classes – not moving a retirement account into any single asset, including gold, in response to a 40-second video. A fee-only fiduciary advisor can model this risk against your actual numbers.

FAQ

What actually protects against sequence-of-returns risk?
Common professional strategies include holding several years of near-term spending in cash or bonds, flexible withdrawal rates, and broad diversification – not concentrating into a single asset class in response to urgency-driven marketing.

Sources

• FINRA – Retirement Withdrawal Strategies

Written by Samuel, Certified Public Accountant. This page may contain affiliate links; see our advertising disclosure.