SORR, or Sequence of Returns Risk, is ultimately a series of events that can happen to your retirement if you’re not prepared. Check out this video to learn the importance of balancing risk versus reward and identifying the proper growth rate that you need to achieve your income goals, maintain your spending desires, and also keep up with inflation.

🏃🏻 Jump right in:
00:00 Introduction to Sequence of Returns Risk
01:23 The Impact of Sequence of Returns Risk on Retirement
03:07 Illustrating Sequence of Returns with Hypothetical Scenarios
04:57 Understanding Retirement Income Needs
05:24 Balancing Risk and Reward in Retirement
06:46 Factors Affecting Risk Tolerance and Capacity
08:37 Tools for Analyzing and Mitigating Risk
09:57 Evaluating Growth Expectations and Market Forecasts
11:26 Stress Testing Retirement Plans
12:53 Strategies for Mitigating Sequence of Returns Risk
15:31 Implementing Flexible Retirement Income Plans
16:36 Diversifying Retirement Assets for Long-Term Stability
18:06 The Importance of Avoiding Emotional Investment Decisions

#retirementincome #portfoliodiversification #marketvolatility

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Disclaimer:
This video discusses fixed-income investing and utilizes the 10-year U.S. treasury as a general representative fixed-income investment. Conclusions reached, opinions stated, and downside risks and potential returns presented should not be construed as applying to other types of bonds or fixed-income assets. Other types of fixed-income products carry different levels of risk and return potential and should be evaluated as an element of a diversified portfolio with your specific risk tolerance, investment objectives, and timeline in mind. Nothing in this video is investment advice, an investment recommendation, or an offer to buy or sell any security. Investing involves risk….(read more)

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When planning for retirement, it’s important to consider a variety of risks that can impact your portfolio. One such risk that many people overlook is sequence of returns risk. This risk refers to the order in which investment returns occur, and can have a significant impact on the overall value of your portfolio.

So, how does sequence of returns risk work? Essentially, if you experience negative returns early in your retirement years, it can have a lasting impact on your portfolio’s ability to grow and provide income over time. This is because withdrawals made during a down market can deplete your portfolio faster, leaving less money available to benefit from a market rebound.

To better understand the impact sequence of returns risk can have, consider two hypothetical retirees – John and Sarah. Both start retirement with a $500,000 portfolio and plan to withdraw 4% annually. John experiences positive returns in the early years of retirement, while Sarah experiences negative returns. Despite starting with the same amount, Sarah’s portfolio is significantly depleted compared to John’s due to the impact of sequence of returns risk.

So, how can you manage sequence of returns risk and protect your retirement portfolio? There are a few strategies you can employ:

1. Diversification: By diversifying your investments across different asset classes, you can reduce the impact of poor returns in one area of the market.

2. Withdrawal flexibility: Being open to adjusting your withdrawal rate based on market conditions can help mitigate the effects of poor returns early in retirement.

3. Cash reserves: Maintaining a cash buffer in your portfolio can provide you with a source of income during down markets without having to sell investments at a loss.

4. Annuities: Consider incorporating annuities into your retirement plan, as they can provide a guaranteed source of income regardless of market conditions.

Ultimately, managing sequence of returns risk requires careful planning and a willingness to adapt your strategy as needed. By diversifying your investments, being flexible with withdrawals, maintaining cash reserves, and considering annuities, you can help protect your retirement portfolio from the impacts of poor market returns early in retirement. Talk to a financial advisor to discuss your specific situation and determine the best strategy to manage sequence of returns risk.