When investing for retirement, most people only focus on achieving an acceptable average rate of return. However, once you stop working and start withdrawing, average returns are no longer enough. To avoid running out of money, sequence of returns becomes critical.
During your career, average returns determine how your portfolio grows over time. But in retirement, sequence of returns – the specific order you experience gains and losses – dictates whether your savings last.
Withdrawing 4-5% annually can work fine if you start in a bull market. But if the first years of retirement hit you with losses, it rapidly erodes your capital. We call this sequence of returns risk.
To mitigate it, you need a retirement income strategy that adapts withdrawals based on market conditions. This allows you to spend less in down years and give your portfolio time to recover. It takes the focus off average returns alone.
At iWealth, we believe having two paths is essential – one for accumulating assets, another for spending them wisely in retirement. We develop customized plans accounting for sequence of returns risk.
To learn more about avoiding retirement mistakes and creating an income plan that works, contact our office. We can walk through your specific situation and concerns. With the right strategy, you can retire with confidence.