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Sequence of Returns Risk Explained

December 08, 2020

If your planning to rely on stock market for retirement income your hoping for the best. That is because a simple run of bad luck early in retirement can turn your financial life upside down.

Let's look at two fictional retirees Bob and Ted. Both have $500,000 invested identically in index fund when they retire and neither one takes any distributions. Notice the returns or index sequence is REVERSED on them. Notice they have the same gain or amount after 20 years.

Know this when you retire can make all the difference. When you include withdrawals negative index returns early on can hurt you. This type of financial risk is known as The Sequence Of Returns Risk. You might call it the luck of the draw. Planning for the worst is having a portion of your income guaranteed can help reduce such risk.

See below Ted runs out of money as result of sequence of returns risk.

We have some really powerful planning software that details all of your cash flows and charts them for greater clarity. Email me or (407) 644-9411 Ext.2

Sequence of Returns Risk Video by Scott Thomas