Retirement Planning Post-Pandemic
Rise of Sequencing Risk
No one truly knows how the markets are to play out in the months or few years ahead, but this recent reminder of the turbulence inherent within investments will serve as a useful reminder for those approaching retirement and thinking about how they will plan for their 30-year life ahead.
Nick Murray often touted the benefits of having a side-fund that would be used to provide withdrawals at the time of market suppression, especially where it is extensive and prolonged, as a means of protecting against sequencing risk.
Regardless, 2020 showed that these pots will provide useful financial and emotional support – a Plan B, per se. After all, some unlucky investors will enter their retirement just at a time when markets are suppressed, making themselves susceptible to this risk impacting their ability to ensure the funds available last throughout their retirement.
Therefore, for those clients that are approaching retirement, the importance of communicating that such possibilities are already built into the plan and broadly at what point this Plan B would become active, such as after a temporary decline of a certain percentage rate, will provide extra reassurances if we find ourselves in similar market positions soon.
Ultimately, the more tools we provide clients with to navigate these challenges, the greater probability that they will lead a rich and enjoyable retirement.
Jason Barefoot is a chartered financial planner at Ascot Lloyd