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Stock Market Volatility and Your Retirement Savings

Pre-Retirees are Concerned With The Stability of The Stock Market…

How to Reduce the Sequence of Return Risk Associated with a Market Downturn 

 

As a pre-retiree, you are probably concerned about the stability of the stock market and its potential to wipe out your retirement savings.  

We’ve all seen it happen before, during the dot-com crash of 2000 and the global financial crisis of 2008.

And now that you’re nearing retirement, it’s understandable that you don’t want to take any chances.

If you have been researching retirement income strategies, it’s likely that you are familiar with the 4% rule for a sustainable withdrawal rate. This method is often prescribed by generalist financial advisors as a way to minimize the risk of outliving your money. (Some also refer to this method as the 3%, 5% or even 6% withdrawal method.)

But, what many pre-retirees don’t realize is that this method may actually expose you to Sequence of Return Risk – one of the biggest risks you will face in retirement.

 

What is the Sequence of Return Risk?

Sequence of Return Risk is the risk that you will experience a period of negative returns early in retirement which can have a major impact on the longevity of your money.

To illustrate,  let’s say you have a portfolio of $1 million and you plan to withdraw 4% each year, adjusted for inflation.

If you retire in a year when the market is down 20%, your first year’s withdrawal would be $40,000. But due to that 20% market decline combined with your withdrawal, your portfolio would now be worth only $768,000 at the end of the first year.   

Now let’s say the market continues on a decline the second year and is down another 15%.  In year two, your planned withdrawal would be $41,200 ($40,000 + 3% increase for inflation).  So after the withdrawal and the market decline, your portfolio will be worth $618,000 at the end of the second year.  

At the beginning of year three, if you took your planned distribution of $42,436 ($41,200 + 3% increase for inflation), your remaining portfolio value would be $575,000.  So you’re now starting year three with almost half of what you started with just 24 months earlier.   That’s scary, because your retirement is just starting and you hopefully have a lot of time ahead of you, but now you only have about half of the money with which you started.  

Even if the market improves during the next year, you are not likely to recover to anywhere near where you started.  And if the market falls once again, your portfolio will be even smaller, resulting in an even greater risk of running out of money during your retirement.

Unfortunately, this is a very real scenario for many pre-retirees. In fact, it’s one of the biggest fears people have about retirement. At our firm, we  call this the Luck Factor™. Good luck retiring in a good market, or bad luck retiring in a bad market.

The good news is there are strategies you can use to protect yourself from Sequence of Return Risk.

 

What’s The Solution?

The good news is that there are retirement income strategies that can help you mitigate this risk and provide you with a path not only to protect your savings, but also to make the most of your money so you can live life on your own terms.

 

One such strategy is our Sovereign Series™ Retirement Plan.

This plan is designed specifically for pre-retirees and retirees who are looking for a way to protect their hard-earned savings from stock market volatility and the Sequence of Return Risk while also participating in the income-producing potential of proper investing.  

 

With this plan, you will:

  • Have more financial confidence knowing you’re on the right track to retirement and you’ve taken steps to mitigate Sequence of Return risk. 
  • Feel more secure knowing your money is working hard for you. 
  • Receive professional help and guidance to ensure you have taken the steps necessary for a successful retirement. 

To learn more about how our Sovereign Series™ Retirement Plan will help you protect your retirement savings and make the most of your money, schedule a 15-Minute Discovery Call™  with a member of our retirement team today. 

If you want to explore your options on your own, we offer a FREE MINI-COURSE called Retirement Basecamp™ to help you get started.

Enroll here.

 

Happy Planning!

Have questions about retirement, investing, or financial planning?

 

Hunt Country Wealth Management can help.
Click below to explore our services, or schedule a 15-Minute Discovery Call™ to talk with an advisor.

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By: Chris Merchant, CFP® 

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We believe retirement should free you. It all starts with a plan.

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