Share The 3 Pressure Points In Retirement
Markets Are Volatile
And Going Down
US equity markets have been exceptionally positive in the last few years and provided excellent returns. But if we look further back, we can see that returns can be very bumpy, especially during the 2008 Great Financial Crisis and the Covid-19 pandemic. Typically, such risks might be remedied by the “safety of bonds”, but bonds have risk too. When rates rose in 2022, we saw the most drastic bond drawdowns in decades.
Global Economic Uncertainty
Is Rising Fast
The world is changing. New regional alliances are forming, new political regimes are overturning old policies, and all of them are creating uncertainties. The graph above is from three academics who track world policy uncertainties. See the rise in recent years.¹
Sequence Of Returns Risk
In The Market
When there is no need to withdraw from the portfolio as retirement income, the sequence of returns is irrelevant as the portfolio continuously trends upwards and equalizes every five years.
But if one intends to withdraw from the portfolio as retirement income, the sequence of returns matters significantly. In the worst case, a retiree would run out of money at 85, while in the best case they would run out of money at 95. This 10-year gap is entirely caused by the sequence of returns risk, so retirees seeking preservation of their investments need to avoid losses early in retirement.
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