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Protect from ‘sequence of returns risk’
Stock market skims can be most harmful to portfolios during the first five years of retirement, which is the “danger zone,” according to Arnott.
If you rescind money when asset values have fallen, there are fewer funds available to capture growth when the market repercussions, she said.
The phenomenon of poorly timed withdrawals paired with stock market losses is known as “sequence of gains risk,” and it could boost your chances of outliving retirement savings, Arnott said.
Negative returns undertaking more damage to portfolios early in retirement than later, according to a 2024 report from Fidelity Investments.
No matter what, if you don’t tap your nest egg when the market is down, “you’re clearly going to change the dynamics, and you have a better chance of healing,” said David Peterson, head of advanced wealth solutions at Fidelity.
The ‘cash bucket’ can shield your portfolio
Judy Brown, a certified economic planner, said the bucketing approach keeps clients “in their seat during market volatility” and offers the possibly to discuss goals. Brown, who is also a certified public accountant, works at C&H Group in the Washington, D.C. and Baltimore area.
The scuttle strategy divides a portfolio into short-, medium- and long-term spending goals, which requires maintenance from year to year to insure the strategy remains effective and aligned with changing financial needs.
Typically, the