Clients' retirement can be ruined by one bad year
Financial advice consultant Grant Pearson, of Longitude68, said sequencing risk – relatively poor returns in the early years of a retirement – could ruin a person’s financial plan, even if they had saved enough money.
He said 2008 was a recent example where many well-prepared retirees had come unstuck.
“For those unlucky enough to have retired near this year, the amount you could then live on had to be cut drastically, or face the likelihood of the money running out and living their last years in poverty or being forced to sell one’s home. This doesn’t have to happen.”
Pearson pointed to a case study of 10 couples, each with $1 million invested in the S%P500. They retired at a rate of one a year between 1977 and 1987. They all withdrew $100,000 a year plus an annual increase of 3%.
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