Discussing Sequence of Returns & How That Affects Your Retirement
June 8, 2022
Welcome to Wealth Enhancement & Preservation’s Market Minute, where we get to update you on everything that happened in the financial markets this week. My name is Darrin Cohen, and I am the CEO of Wealth E&P.
Last week was another rough week for the markets, with all the indices down about 1% for the week. We still hold on to optimism for the rest of the year with some promising signs of the fundamental economic indicators. However, there are some headwinds with rising rates and inflation. Today, I want to talk to a particular group of investors: those that are recently retired or are about to retire. I want to talk about sequence of returns and how that affects that target market.
The above chart shows sequence of returns when you're in the accumulation stage; this includes when you're working, earning, and saving money. It doesn't matter when the rate of return comes, good or bad and early or late, it just matters what the average return is over a period of time when you're accumulating. You can see on the top that you've got an investor that has great returns early on and negative returns late. Alternatively, the bottom investor flips that: this shows bad returns early and great returns late. They end up in the same place.
Alternatively, we look at a retiree in the above chart who starts taking a 5% withdrawal from their portfolio. If they start with positive returns, not only do they get all of the income they need in retirement, they end up with more than they started with. However, if you start with those negative returns, you're out of money in 13 years. Those two people did all the same things: they work the same, earn the same, and save the same amount of money for retirement. They just happened to retire at different times, and because of that, one ended up running out of money while the other ended up with much more money.
I bring this up because during a period of uncertainty, if you're in that window three to five years before or after retirement, it's very important to protect what you've got and have a system or process to make sure to manage risk. Our team would be happy to chat with you all about it!
If you have any questions about this topic, if you want a risk profile, or if you would like a retirement projection, please feel free to reach out, visit www.wealthep.com, or give us a call at (678)-739-0175. Otherwise, stay tuned for our Market Minute next week!
At Wealth Enhancement & Preservation, we are here to serve as your financial advisor and source of support in the Alpharetta, GA, Cartersville, GA, and Charleston, SC areas. Our advisors are dedicated to simplifying the complexities of the financial world and as your advocate, we strive to learn about your most valued goals and dreams. From individual investors to entrepreneurs, our services are designed for your success.