Low interest rates for your savings
In a volatile market, transitions to safer but lower yield investments during and approaching retirement is
important. However, low return rates early in retirement are much more damaging to retirees than
experiencing low yields a decade or so in. What Is The Sequence Of Returns Risk, And How Can You Manage It
When You Retire - Sequence risk is the idea that with low returns early in retirement, especially if retirees withdraw
from principal to fund their lifestyle, more damage is caused than withdrawals that occur later in retirement. Analysis by Michael Fiske and
David Blanchette early this year in Advisor Perspectives shows that historically, when dividend yields were low, bond yields were high, but
today both are well below long-term averages. Their calculations show a tripling of principle is needed to achieve equivalent yields to sustain a 30-
year retirement from just a few years ago. This may cause retirees to withdraw from their principal earlier than expected, rather than living
solely off interest in order to maintain lifestyle. For early retirees this cuts balances lower at a sooner than expected point in retirement and requires
either severe cutbacks in spending or greater upswings in yield to recover.
When yields drop, cutting back spending temporarily can be helpful. Simply forgoing annual inflation adjustments for three years can
help temper the bite of a slowdown. Ideally, retirement savers prepare in advance for sequence-of-returns risk before an economic slowdown by
putting one to three years of income in cash. Liquid, cash holdings are a more attractive option early on in an economic slowdown. Retirees may
want to review their investment portfolios and reconsider their strategy, working with their financial adviser. Investors are cautioned against making
emotional decisions with their existing portfolio, but to rebalance as needed and move deliberately into a position of greater security.
Those approaching and in retirement can exercise best practices such as getting a handle on debt, reducing unnecessary
spending, and maintaining an adequate amount of cash to handle emergencies. Investors who prepare for an economic slowdown,
especially early in their retirement, are in a good position to re-strategize their portfolio to take advantage of the downturn.
Financial advice from a knowledgeable expert can help them take future downturns into account.
Wishing you and your loved ones continued health. Please feel free to call
or reply with any questions you might have. All The Best!
Steve Dybwad is a member of Syndicated Columnists, a national organization
committed to a fully transparent approach to money management.
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