An Under Appreciated Risk

As one stands on the 10th tee (Start of the Back 9 / beginning of retirement) one must anticipate and realize the many hazards that they may face in the years to come.  As an example; there is LONGEVITY RISK (How long will we live), HEALTH RISK, INFLATION RISK, STOCK MARKET RISK, INTEREST RATE RISK, WITHDRAW RISK (What is safe amount), LONG TERM CARE RISK, BLACK SWANS (unexpected events like 9/11 or COVID), DEATH OF A SPOUSE, etc. etc.  But the 1 Risk that often flies  under the radar is SEQUENCE RISK.  Sequence risk is the risk of retiring at the beginning of a Bear Market and having your investment portfolio decline by a significant amount.

“Always retire at the beginning of a Bull Market”

If you’re going to retire you should do so in 1982, or 2001, or 2009.  You shouldn’t retire in 2000, or 2008.  The question you have to ask yourself is how do you know?  The answer is you won’t know until after the fact!

If you’re in the Accumulation Phase / Front 9 there is literally no difference (see attached illustration), however if you’re in the Distribution Phase your portfolio is totally destroyed if you had retired at the beginning of a Bear Market.  Thus, you’ve violated the Cardinal Rule of Retirement Income Planning, you ran out of money before your ran out of time!

Cover the Nut

There are so many different opinions as to how to structure a retirement income portfolio, but my favorite as to simplicity and effectiveness is using an investment pyramid approach.


With this approach you determine What do you absolutely positively need each month to cover your essential expense so that you can sleep at night.  Once you’ve determined that number you structure your total portfolio to accomplish this objective thru Guaranteed Income sources.  What might encompass Guaranteed Income sources?

  • Pensions
  • Social Security
  • Guaranteed Annuity Income

I don’t consider Stocks and or Bonds as Guaranteed sources of Income, I would use those assets to cover the WANTS.  In good years you go to Europe, in bad years you go to the lake, Whether you know it or not, you’ve taken this approach your entire life.

Claiming Social Security

As I’ve mentioned on numerous occasions in the past on the importance of having the higher earning spouse, delay claiming on their own record until they reach age 70.  Whatever your check is at 62, it is DOUBLE at age 70!

Since many of us will not have the luxury of a pension and we might not have the luxury of covering the nut, so what are my alternatives should I decide to retire early (before age 70)?

  • Have lower earning spouse claim on their own record. If they are not yet at FRA the Earnings Test my eliminate this option.
  • Work part time in order to cover essential expenses (PHASED RETIREMENT)
  • Use a CD ladder or an Immediate Single Pay Annuity to create immediate income while delaying Social Security to 70
  • Any COMBINATION of the above!

3 Dimensional Chess

Creating a lifetime inflation adjusted income for an unknown timeline is probably the most difficult assignment for any financial advisor. It is imperative that one consider all of one’s resources and all the hazards that one might experience as they navigate their Back 9.

CLICK TO VIEW: Sequence of Returns Risk


Have a Great Month and Never Ever Hesitate Reaching out if you think I can be of assistance.

Dave Zander, CFP®
MLS# 1603774