{"id":109934,"date":"2025-08-01T09:50:20","date_gmt":"2025-08-01T09:50:20","guid":{"rendered":"https:\/\/www.europesays.com\/us\/109934\/"},"modified":"2025-08-01T09:50:20","modified_gmt":"2025-08-01T09:50:20","slug":"dont-let-a-bear-market-derail-your-retirement-income-plans","status":"publish","type":"post","link":"https:\/\/www.europesays.com\/us\/109934\/","title":{"rendered":"Don\u2019t let a bear market derail your retirement income plans"},"content":{"rendered":"

Open this photo in gallery:<\/a><\/p>\n

Investors can often underestimate the ongoing impact of market drops early in retirement.GETTY IMAGES<\/p>\n

No investor welcomes a bear market, one that\u2019s defined by sustained downturns of 20 per cent or more. Do-it-yourself (DIY) investors nearing or just entering retirement have a particular reason to be \u2018bear aware.\u2019 A steep dip early in retirement can upset the best-laid plans of DIYers who are too heavily exposed to stock market volatility. <\/p>\n

It\u2019s called the sequence of returns risk, and it\u2019s something that many retirees often overlook and underestimate. A market decline in the first few years of retirement can have an outsized impact on the ability of your capital to produce income long-term. The impact is even greater when a bear market coincides with a period of income withdrawals, meaning less money available to grow. <\/p>\n

\u201cSequence of returns risk is really about when the returns from the investment portfolio turn negative at the worst time,\u201d says Calvin Greefhorst, vice president and regional director of high-net-worth wealth planning at BMO Wealth Management in Vancouver. <\/p>\n

That\u2019s one of the hazards of the decumulation years, when retirees must unwind the assets they\u2019ve accumulated while working in order to create their new paycheque.<\/p>\n

Based on their annual income needs, many people zero in on securing a certain annualized return from their portfolio. Maybe that\u2019s 4 per cent, for example, over a 30-year period to fund retirement sustainably. Yet that forecast can ignore short-term volatility, including consecutive years of down markets earlier during retirement. <\/p>\n

One study by asset manager Charles Schwab<\/a> illustrates the impact of sequence of returns risk. It looks at two investors with $1-million portfolios who experienced identical market losses but at different times in retirement. <\/p>\n

This scenario is based on the investors making annual withdrawals of $50,000, indexed to inflation. Investor A had losses of 15 per cent in the first two years post-retirement. By year 18 of their retirement, that investor is nearly out of money. In contrast, Investor B endured the 15 per cent loss in years 10 and 11 of retirement, but still had $400,000 by year 18. <\/p>\n

Mr. Greefhorst notes that many DIYers are especially exposed to sequence of returns risk, as they often have portfolios that are heavily tilted toward stocks. <\/p>\n

\u201cFrom a portfolio construction point of view, ideally in the years leading up to retirement you want to reduce risk and volatility.\u201d<\/p>\n

That means investing more in fixed income, \u201csomething many DIYers find sort of boring,\u201d he adds. Mr. Greefhorst suggests looking to bond exchange-traded funds (ETFs) or actively managed fixed income mutual funds for simple, diversified and low-cost exposure to fixed income. \u201cThis strategy allows you to take advantage of negatively correlated returns.\u201d <\/p>\n

Bonds often rise in value when stock markets fall, so a portfolio with fixed income is generally less affected by stock market declines. As well, bonds pay coupons (interest) that can help meet immediate retirement expenses. <\/p>\n

Yet even allocating 50 to 60 per cent of your portfolio to bonds may not sufficiently manage sequence of returns risk. For instance, 2022 showed us that bonds and equities can fall in value at the same time. <\/p>\n

To mitigate this risk, consider a cash wedge strategy, says Praneil Ladwa, journey leader, Grow My Wealth at Questrade in Toronto. That\u2019s where you set aside a dollar amount based on estimated living expenses in a cash account. Potentially, that can avoid selling equity positions at a loss. <\/p>\n

\u201cWhen markets drop, you draw against this cash buffer,\u201d says Mr. Ladwa. <\/p>\n

How much should people try to have on hand? \u201cKeep at least one year\u2019s worth of cash flow in a savings product with no volatility, and maybe two or three more years in laddered GICs,\u201d suggests Dan Bortolotti, a portfolio manager with the Bender, Bender and Bortolotti team at PWL Capital in Toronto.<\/p>\n

In theory, people could go through retirement with an all-equity portfolio and still generate consistent income while managing sequence of returns risk. Mr. Bortolotti points to a recent YouTube video<\/a> by a PWL colleague on the subject. \u201cIt\u2019s a statistically possible strategy. A 100 per cent equity portfolio certainly can fall really hard, but it can also bounce back really quickly.\u201d<\/p>\n

The issue, however, is whether you can adjust withdrawals to reduce the impact of poor equity returns until the portfolio recovers. The Charles Schwab study shows how reducing withdrawal rates preserves capital, reducing the impact of sequence of returns risk. <\/p>\n

Again, two investors experienced 15 per cent declines early in retirement. One draws on capital at half the rate of the other investor (2 per cent opposed to 4 per cent), and sees the portfolio recover within a little more than 11 years. The other investor who kept withdrawing at 4 per cent would need 28 years to regain the lost capital. <\/p>\n

In reality, most retires \u201cjust don\u2019t have the stomach for a 100 per cent equity portfolio,\u201d Mr. Bortolotti says. <\/p>\n

Having a sufficient cash wedge reduces the likelihood of breaking the golden rule of decumulation, Mr. Ladwa notes. \u201cDon\u2019t sell your investments during a fire sale, which could lead to you sacrificing compounding returns long-term for a much less comfortable retirement.\u201d <\/p>\n","protected":false},"excerpt":{"rendered":"Open this photo in gallery: Investors can often underestimate the ongoing impact of market drops early in retirement.GETTY…\n","protected":false},"author":3,"featured_media":109935,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[15],"tags":[31731,69988,64,69985,69986,255,700,69983,69984,69987,69989,67,132,68],"class_list":{"0":"post-109934","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-personal-finance","8":"tag-adveditorial","9":"tag-bearmarket","10":"tag-business","11":"tag-decumulation","12":"tag-ordid3790914669a","13":"tag-personal-finance","14":"tag-retirement","15":"tag-retirementincome","16":"tag-retirementplanning","17":"tag-retirementsavings","18":"tag-sequenceofreturnsrisk","19":"tag-united-states","20":"tag-unitedstates","21":"tag-us"},"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@us\/114952891656701961","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts\/109934","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/comments?post=109934"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts\/109934\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/media\/109935"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/media?parent=109934"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/categories?post=109934"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/tags?post=109934"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}