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I'm retired ...


Protecting your savings


When you were saving for retirement, time was on your side and you could ride out the ups and downs of the market. Time is no longer on your side as you start taking cash out of your nest egg. Market losses right before or as you begin retirement not only diminish years of smart saving, they can increase the risk that you will run out of retirement income.


Simply stated, if market losses occur as you enter retirement or in the early years of your retirement, the risk of running out of retirement income is much higher than if such losses occur later in retirement. This principle is known as the risk of the sequence of returns. For a closer look at this phenomenon, look at John and Susan.


We can illustrate the sequence of returns with the tale of two investors: John and Susan. Each started with a nest egg of $500,000 at age 65 and began taking withdrawals each year initially equal to 5% of $500,000 and increasing by 3% each year to account for inflation.


In each case, John and Susan averaged an 8.03% annual return, and both investors experienced three terrible years in the market. But, they had vastly different results because of when the market losses occurred. Here's a snapshot of three key points in each investor's life:


John's Market Losses
Susan's Market Losses
-10.14% at age 65 -23.37% at age 87
-13.04% at age 66 -13.04% at age 88
-23.37% at age 67 -10.14% at age 89







Because John experienced the market losses early in his retirement, he ended up running out of money at age 83. The market losses hit Susan much later in life, so she still had plenty of money left to fund her entire retirement.


  • John's and Susan's nest egg at age 65 = $500,000
  • John's Account Value at age 83* = $0
  • Susan's Account Value at age 89* = $1,677,975


*Represents Account Value at start of year