What is sequence-of-returns risk for Gen X retirees?

Sequence-of-returns risk is the danger that poor market returns early in retirement, combined with regular withdrawals, reduce a portfolio faster than expected. For Gen X clients approaching retirement, a major drawdown can be especially harmful because they may have limited time before their savings must begin supporting retirement income.

Why can two Gen X retirees with the same average return have different retirement outcomes?

The order of returns matters when a client is withdrawing from a portfolio. A retiree who experiences losses early may need to sell more investments at depressed prices to fund spending, leaving fewer assets available to recover later. Another retiree with the same average return but stronger early performance may have a larger portfolio when a later downturn occurs.

What is the retirement risk zone?

The retirement risk zone is the period surrounding retirement, when a market decline can have an outsized effect on a client’s long-term income plan. Losses in the final working years can reduce retirement savings shortly before withdrawals begin. Losses after retirement can be harder to recover from because the client may already be selling assets to meet living expenses. The term has no single fixed definition, but it often refers to the years immediately before and after retirement.

How can financial advisors help Gen X clients manage sequence-of-returns risk?

Financial advisors can help Gen X clients manage sequence risk by reviewing asset allocation before retirement, creating a written withdrawal plan, maintaining liquidity for near-term spending needs, and stress-testing the portfolio against poor early-return scenarios. A disciplined investment process and flexible spending plan may also help clients avoid selling long-term investments after a market decline. Sequence risk cannot be eliminated, but planning can help clients make more informed decisions during volatile markets.

Gen X Retirement Risk: Are Your Clients Buying at the Top?

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Gen X Retirement Risk: Are Your Clients Buying at the Top? | Dunham