Retirement planning isn’t just about how much you save…it’s also about the order in which your investment returns occur. This often-overlooked concept, called sequence of returns risk, can significantly affect how long your money lasts.
Why It Matters
Imagine two retirees with identical savings and average returns. If one experiences market losses early in retirement while making withdrawals, their portfolio may deplete faster…even if long-term returns are the same. That’s sequence risk at work.
How to Manage It
- Build a cash buffer: Keep 1-2 years of expenses in cash or short-term bonds to avoid selling during downturns.
- Diversify income sources: Combine portfolio withdrawals with Social Security, pensions, or annuities to smooth income.
- Be flexible: Adjust withdrawal rates temporarily when markets fail to preserve long-term sustainability.
Plan for Volatility
No one can control markets, but proactive planning can reduce vulnerability. Through stress-testing, Western Financial helps clients visualize how different market scenarios may affect their income and make adjustments before problems arise. Protecting your retirement from timing risk starts with a well-structured, adaptable plan.
Schedule a complimentary consultation with Western Financial Corporation to learn more.