How Sequence of Returns Risk Can Affect Your Retirement Portfolio

How Sequence of Returns Risk Can Affect Your Retirement Portfolio


Timing is everything, especially when your goal is making your money last throughout the course of retirement. Market performance and distribution timing can impact the value of your investment portfolio. So it is important to be aware of investment strategies that can help offset some of the effects of a fluctuating market.

One concept to take into account is sequence of returns risk – the risk of receiving lower returns early in a period when you make investment withdrawals. This can be a serious concern for retirees living off the income and capital of their investments. Whether you are approaching retirement – or are already there – the following advice may help.

Timing Really Does Matter

Once you transition from saving to withdrawing money from your investments, fluctuations in the market, especially during the first few years, can have tremendous impact on your wealth and financial future. With the average number of years spent living in retirement growing steadily, you have to plan carefully to avoid outliving the retirement fund you worked so hard to build.

Experts recommend sitting down with your financial advisor before you retire and establish a withdrawal plan. Keep in mind how the timing of withdrawals may impact your overall financial goals. Once a withdrawal plan is in place, consider these strategies to help protect the value of your retirement portfolio:

  • Establish a spending plan. Commit to a constant percent withdrawal from your nest egg instead of an inflation-adjusted withdrawal, especially if you are facing a sequence of returns risk during your early withdrawal years. While this strategy involves some flexibility, it could help ensure that you will not run out of money.
  • De-risk your portfolio. You can reduce your sequence of returns risk by reducing the risk level of your portfolio, which may offer more protection from a volatile market.1
  • Start low and end high. Reduce your stock allocation2 during the early part of your retirement when sequence of returns risk is greatest. Then, gradually increase the percentage over time. This strategy may reduce vulnerability to early retirement stock market declines.
  • Consider all sources of income. Before you touch your portfolio, take all income sources such as Social Security, other cash savings and your spouse’s income into account

By creating and sticking to a long-term retirement strategy, you may be able to offset the effects of a volatile market. For more information about how market performance and distribution timing can impact your retirement, contact a Fifth Third Bank financial advisor.

The information contained herein is for information purposes only, is not designed to address your financial situation or particular needs and does not constitute the rendering of tax or legal advice. You should consult with your tax advisor or attorney for advice pertinent to your personal situation. Asset Allocation, Alternative Investment and Hedging/Diversification strategies are intended to mitigate the overall risk within your portfolio. Some strategies may be subject to a higher degree of market risk than others. An investor should understand the costs, cash flows and risks inherent in a strategy prior to making any investment decision. There are no guarantees that any strategy presented will perform as intended. Fifth Third Private Bank is a division of Fifth Third Bank offering banking, investment and insurance products and services. Fifth Third Bancorp provides access to investments and investment services through various subsidiaries, including Fifth Third Securities. Fifth Third Securities is the trade name used by Fifth Third Securities, Inc., member FINRA/SIPC, a registered broker-dealer and registered investment advisor. Registration does not imply a certain level of skill or training.

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