Five Years Before and After Retirement Can Make or Break Your Golden Years
When retirement begins is nearly as important as the value of retirement’s assets. Sequence of returns is retirement’s #2 risk, right behind the #1 risk longevity. Preparation and realistic expectations about assets may extend their duration and avoid depletion.
It’s often said that “timing is everything,” and that’s nowhere more relevant than retirement’s planning before the retirement’s Red Zone. Similar to football’s red zone – the 20-yard distance from the goal line where strategy and execution can result in a score – the five years on either side of retirement is where goals have the potential to be met.
Unlike working years, when accumulating assets is the priority, distributions of assets in retirement are subject to the sequence of returns. The rules for the last five years of accumulation are not the same as the first five years of distributions. With no plan to follow, excessive withdrawals and bad market returns may erode principal and potentially exhaust assets before death.
Seniors go through a major transition when they enter retirement. Most retirees encounter a series of unfamiliar obstacles that they did not experience during their working years. The focus of your working years is primarily on accumulating money. In retirement the focus shifts to being able to pull that money out while still preserving it and making it last. Early declines in the stock market combined with ongoing or over-withdrawals can lead to retirees running out of money. The threat of Sequence of Returns risk and preparing for it is crucial for the longevity of your money during retirement years. Increased longevity is also aggravates asset distribution. With both genders typically living deep into their 80s and early 90s, the result is increased demands on nest-egg principals and any account changes
The Sequence of Returns risk is frequently overlooked by both retirees and their financial advisors. Being aware of the dangers associated with this risk, and planning for it, can be invaluable to your retirement. Discussing the sequence of returns risk with your adviser may be the most important money discussion you’ll ever have. By recognizing both retirement’s risks and realities, retirees can construct a plan that will get them through the red zone and into the end zone.
Syndicated financial columnist Steve Savant interviews top retirement specialists in their field of expertise. This segment features retirement specialist Kevin Smith. Right on the Money is a financial talk show distributed in daily video press releases to over 280 media outlets and social media networks.
