Your Retirement Income Has An Expiry Date

Unless you understand this…

Sequencing risk refers to the potentially devastating impact of poor investment returns occurring at the outset of your retirement, rather than later.

The order in which returns are experienced matters enormously when you are drawing down a portfolio, even if the long-run average return is identical. A retiree who encounters a severe market correction in years one to three faces a fundamentally different outcome to one who experiences the same correction in year fifteen – by which point their portfolio has had years of growth and withdrawals are drawing on a much larger accumulated base.

Consider two retirees, both with £500,000 on day one, both withdrawing £20,000 a year. The first retires in 2000, immediately ahead of the dot-com crash, and sees their portfolio fall sharply just as withdrawals begin. The second retires in 1995, enjoys five years of the bull market, and only then encounters the same crash. Despite facing identical market conditions over