Protect · 16-page PDF
The Sequence Risk Primer
Two retirees can experience the same long-term market returns and still end up with different results.
Why a bad market early in retirement can matter more than the same bad market later, what it can force you to do, and a bad-year test to run on your own plan.
You've probably lived through plenty of bad markets already. Retirement changes one important part of that equation: you're no longer just putting money in. You're also taking money out.
Why does the order of returns matter in retirement?
Because when a decline happens while you're also withdrawing money, more of the portfolio may have to be sold while values are down, and those dollars are no longer invested if a recovery eventually comes. Two retirees can experience the same long-term market returns and still end up with different results, depending on when the bad years happen.
Sequence risk becomes a planning problem when a bad market and a need for cash show up at the same time.
What can you do about it?
There isn't one fix. Income that doesn't depend on selling investments, cash and shorter-term money, flexible spending, and the investment structure itself are tools, each with a tradeoff, and a plan may use several of them together.
The primer ends with a bad-year test: what your own plan would ask of you if investments fell substantially while you were taking money out.
What this is, and is not
Seven short sections, two charts of real S&P 500 history with their sources, and a bad-year test you can fill in on screen or print.
It is education, not advice, and it makes no forecast. You don't need to predict the next downturn to plan for it.
Inside the guide
- Same returns, different order. Why the average doesn't tell the whole story, shown with twenty real years of S&P 500 history.
- Put yourself in the first bad year. The market is down, your life isn't, and what you would actually do about it.
- The years around retirement. Why the direction of the cash flow changes, and three questions to answer before your date.
- What the plan forces you to do. Selling investments after a decline, and the part of it you can plan around.
- There isn't one fix. Dependable income, cash, flexible spending, and the investment mix: tools, each with a tradeoff.
- The bad-year test. Eight questions to run on your own plan, filled in on screen or in print.