4 Ways to Effectively Manage Sequence-of-Return Risk in Retirement

(don’t forget to checkout the video of this blog too)

The sequence-of-return risk is rarely talked about…

Yet it can be the difference between a successful retirement and a failure.

The sequence-of-return is really the risk of withdrawing money from the market…

When the market is down.

When you do this the cost of that retirement income is much more than it normally would be.

It also puts you at much higher risk of running out of money in retirement.

Here are 4 ways to effectively manage this risk in retirement:

✅ Spend conservatively

The 4% Rule was designed to allow for a risk-managed source of income from the market.

This low withdrawal rate provides protection against over-spending (especially in a down market).

BUT, it requires that you have a LOT of money saved for retirement.

✅ Have a Discretionary Income Bucket

This means that some of your income in retirement is performance-based.

Meaning you will adjust your budget according to the performance of this bucket in retirement.

If the market drops big, you may have to push that European vacation back a couple years.

✅ Reduce Volatility (in the most important years)

Protecting your income is crucial‼️

Especially in the 5–10 years leading up to retirement (AND in the first few years of retirement).

I often refer to this as “The Critical Window”.

You can de-risk your portfolio with a large portion of bonds…

or you can use an income annuity to create additional guaranteed, lifetime income for yourself in retirement.

This is one way to ensure at least one source of market-independent income for more predictability and safety of your overall retirement income plan.

✅ Having a Market-independent Buffer

This means that not all of your assets are in the market or in annuities.

You have money that is liquid and available for short periods of time.

This can be cash, laddered bonds, or even the right type of IUL.

Either way this prevents you from having to pay surrender charges on annuities…

or from selling investments at a loss.

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