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When people save for retirement, the biggest concern is the return on investment. When they retire however, it’s not only the returns they need to care about, but also the order of those returns.

Negative returns during the first couple of years of retirement can increase the risk of running out of money, much more so than the same negative returns happening later in retirement. This is sequence of returns risk.

People who experience even one year of market loss early in retirement may need to make significant adjustments to their plans. Conversely, the same loss later in retirement will likely have much less of an impact on one’s retirement income or lifestyle.

People may be used to looking for the average return on their portfolio, but it’s not just the average return that is important. In fact, the is order or sequence of your investment returns can make a huge difference in your retirement income.

Let’s look at two hypothetical retirement portfolios with the same average return from 2000 - 2020. 1 While both portfolios experienced the same average return (6.11%) from S&P 500 returns and had the same withdrawals ($114,706), the ending account balance for portfolio 2 is significantly larger than portfolio 1. Portfolio 1 would have a much more difficult time providing retirement income in the future. This is all the result of sequence of returns.

We’ll dive a little deeper to further illustrate this point. Let’s say the initial investment was $100,000 with $4,000 in annual withdrawals increasing 3% each year for inflation. Portfolio 1 experiences the S&P 500 returns from the year 2000-2020, and ended with a balance of -$21,588. Portfolio 2 experiences the same annual returns, but in reverse order, with an ending balance of $136,266. Even though the portfolios had the same average return and withdrawals, the order of that return can make a dramatic difference in a person’s retirement. This is why it’s so important to consider sequence of returns risk*.

What can people do to mitigate this risk?

Many people might think that they can mitigate sequence of returns risk by reducing or eliminating equity holdings in portfolios. But this compromises the upside potential that equities can provide and may lead to running out of money quicker. Portfolios with higher allocations to equities have typically outperformed, because downside volatility in the U.S. equity markets has historically been relatively short-lived. Past performance is not a guarantee of future returns.

Adding income annuities to a retirement portfolio is an efficient way to help reduce the sequence of returns risk. How?

• Income annuities are uncorrelated with capital markets and they reduce the net withdrawals from a portfolio.

• This helps lessen the likelihood of and allows retirees to keep some of their money invested in the market and take advantage of any potential future gains.

• Having additional sources of guaranteed lifetime income also reduces the role luck plays in retirement outcomes.

Income annuities are a low risk alternative that can take some of the uncertainty out of the market and ultimately your retirement.

Product guarantees are based on the claims-paying ability of the issuer.

This educational, third-party article is provided as a courtesy by Bennie M. Currie, Principal, MBC Financial Strategies and Agent, New York Life Insurance Company. To learn more about the information or topics discussed, please contact Bennie M. Currie at or 773-517-9234 or online at

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