Why the Stock Market Can Make or Break Your Retirement

Now consider Susan. Susan is also 65 years old and she too has $500,000. And like John, she will withdraw 5%, or $25,000 per year, and also increase her withdrawal slightly each year to adjust for inflation.

To show you exactly what I am talking about, I used the exact same investment returns for Susan’s account. I simply flipped the sequence of those returns. I reversed the order so that the first year becomes the last year and vice versa.

By merely reversing the order of the returns, Susan has an entirely different retirement experience. In fact, by the time she is 89, she has withdrawn over $900,000 in income payments and still has an additional $1,677,975 left in her account!

Two people, same amount for retirement, same withdrawal strategy: one is destitute, while the other is absolutely free financially. And what’s even more mind-boggling: they both had the same average return (8.03% annually) over the 25-year period!

Investors can do everything right – minimize fees, minimize taxes, not chase performance and hold strong during periods of volatility. But if they need to start spending during one of these periods, when the market is spiraling or even flat, there can be a devastating impact on their nest-egg which could very well impact their ability to care for a loved one, pay for retirement or send a child to school. There is no assurance that the market will cooperate with our life plans.

That’s why we need better and less expensive solutions that protect against the sequence of returns risk. And this is why downside protection is critical while maintaining exposure to equity market returns. Investors deserve risk management strategies that will help give them the financial freedom they deserve.

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