Managing Income In Retirement
Managing income in retirement
Hedging 7 big retirement risks

Managing Income In Retirement » Hedging 7 big retirement risks

Retirement risk No. 5: sequence of returns
Slide 6 of 8
Retirement risk No. 5: sequence of returns

When you regularly invest in a retirement plan during your career -- a practice called dollar-cost averaging -- you purchase fewer shares when the market is up and more shares when the market is down. You're effectively buying low and curbing your purchases when prices are high.

Unfortunately, when you withdraw money from your portfolio during retirement, the volatility of markets can inflict substantial damage. If you take a set amount in distributions each month, you end up selling more shares when the market is low -- locking in your losses rather than giving the market a chance to recover. "I liken it to the reverse of dollar-cost averaging," Horan says.

To protect against this risk, he recommends setting aside two years' worth of living expenses as a buffer. When the market is down, you can draw down from that cash rather than selling from your portfolio. When it's up, you can sell your investments at a profit.

You can also purchase annuities and other guaranteed-return investments to cover your bare-bones living expenses, Reese says.

"Now the sequence of returns is only happening to your excess funds, and you can pick and choose when you want to pull those excess funds," he says.





Show Bankrate's community sharing policy
          Connect with us

Be An IRA Expert

Lessen the retirement tax bite

Worried about retirement income? Follow these 5 strategies to lessen tax liability.


Learn the latest trends that will help grow your portfolio, plus tips on investing strategies. Delivered weekly.


Jennie Phipps

Feds fight to thwart ID thieves

The IRS, Federal Trade Commission and Social Security Administration are taking steps to protect consumers from identity theft.  ... Read more

Partner Center

Connect with us