Retirees face many risks in retirement. One risk they face early in retirement can compound another they may encounter later in retirement. These risks are sequence of returns risk and longevity risk. Devices that advisors employ in their clients’ retirement income plans include tactics that aim to mitigate longevity risk. No one wants to outlive their money. Managing for sequence of returns risk is critical to minimizing longevity risk.
Writing in US News, journalist Barbara Friedberg taps industry experts to help tackle some of the specific risks to retirement income. RetireOne founder and CEO David Stone offers variable annuities with guaranteed living withdrawal benefits as a way to bridge the “fragile decade” and solve for sequence of returns risk.
A recession early in retirement can be catastrophic to an asset as folks begin to draw it down. That same recession later in retirement wouldn’t have the same negative impact. David notes that, “Our research has shown that you can flip 15 years of returns from retiring during a recession to retiring during an upmarket and completely change your outcome. The initial positive returns would offset the withdrawals and potentially grow the assets before the negative returns begin to impact the investment.”
Of course next-gen, low-cost variable annuities are the recommended vehicle.