Strategies for Managing Sequence of Return Risk in Retirement

For long-term investors, the reality is that even if markets are volatile for a period of time, as long as the portfolio stays invested, returns can average out in the long run. In the case of retirees, however, ongoing spending withdrawals introduce the possibility that if the portfolio experiences weak returns early on, it could be depleted entirely before the good returns finally show up. As a result, retirees must consider this “sequence of returns” risk when planning for retirement, and strategies to manage it, from reducing spending in the first place, to engaging in more dynamic asset allocation to reduce risk exposure, or dynamic spending strategies to adapt spending withdrawals to market changes along the way!