When we talk with clients and prospective clients retirement is generally their primary goal. We work our lives and sacrifice during our savings years to prepare for a successful retirement. It’s important to understand the most important years of retirement: the initial years of distribution. Let’s discuss the timing of portfolio return and the importance of mitigating risk in the early years of distribution to be sure you don’t run out of money.
When I entered the wealth management field nearly 15 years ago, one of my mentors often said, “Math is math.” That simple truth is one reason I love working with numbers; they’re objective, clear, and absolute. So, let’s dig into the numbers and compare retirement scenarios that assume the same overall return over 10 years. You’ll see just how different the outcomes can be depending on the sequence of returns; especially during retirement years versus your working years.
Example 1: The Accumulation Phase
Imagine two portfolios, each starting with $1 million, and each experiencing the same average return of 5.2% annually over 10 years. The difference? Portfolio A sees poor returns in the first 3 years followed by strong performance. Portfolio B does the opposite—strong early returns, then weaker results in the final 3 years.
The result? No difference. Both portfolios end with $1,538,850. Why? Because during the accumulation (or savings) phase, you’re not withdrawing funds. The timing of returns hasn’t affected the outcome, yet.
Example 2: The Distribution Phase
Now let’s look at those same portfolios in retirement; only this time each is distributing $100,000 per year.
Suddenly, the difference is staggering. After 10 years, the portfolios no longer match. One could have almost $1 million less than the other, depending on when the losses occurred. A 65% portfolio drop in your first decade of retirement could force you to consider part-time work—something few people want after 10 years of retirement.
This difference is known as the sequence of returns risk, and it’s one of the most dangerous and overlooked risks retirees face.
Where OmniStar Comes In
This is where our team at OmniStar does some of our best work. Our goal isn’t to swing for the fences with big returns, but rather to mitigate downside risk and protect what you’ve worked so hard to build. That’s how we give our clients the best shot at a secure, confident retirement.
After all, the real goal of retirement isn’t to grow your portfolio endlessly—it’s to make sure you never run out of money, or sustainable income.
If you have questions or would like to review your retirement strategy, your team at OmniStar is here to help. And if you know someone who is nearing retirement—or already in those first critical years—please feel free to share this with them.
This topic is too important to leave to chance. If someone isn’t certain they’ve addressed the risks in their plan, there may be blind spots that need to be illuminated. That’s what we do, and we do it very well.
