Sequence Risk

The Perks Of Being A Flexible Spender In Retirement

William Bengen’s 1994 article introduced the concept of the 4% rule for retirement withdrawals. He defined the sustainable spending rate as the percentage of retirement date assets which can be withdrawn, with this amount adjusted for inflation in subsequent years, such that the retirement portfolio is not depleted for at least thirty years.

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Sequence Risk vs. Investment Risk

A lot has already been written about the sequence of returns risk confronting retirees. But the full implications of sequence risk have not been completely internalized. Retirees become more vulnerable to investment volatility, because as they withdraw from their portfolio they may find themselves locking in investment losses. It’s the opposite effect from dollar cost averaging.

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