Market performance is unpredictable, and as you approach retirement, these fluctuations can have significant consequences. Careful planning and sound financial advice are essential during this critical period.
What Is Sequencing Risk?
The “retirement risk zone” refers to the 5-10 years around retirement when savings are most vulnerable to market downturns. Unlike younger investors, retirees may face compounding losses from early negative returns while drawing down their savings, known as sequence of returns risk.
How Sequencing Risk Impacts Retirement
For example, if you retire with $1 million and withdraw $40,000 annually, an initial 15% market drop followed by gains of 5%, 10%, and 20% over the next three years can still deplete your savings faster. Conversely, retiring in a bull market can offset withdrawals, preserving your balance.
Continue reading “Understanding Sequencing Risk: Protecting Your Retirement Savings”
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