The sequence of returns impacts investors when they are either adding to or withdrawing money from their retirement portfolio, which can create risk depending on the sequence and the market conditions at the time. If an investor is not doing either, then there is no sequence of returns risk.
However, if an investor is drawing down their portfolio and not contributing new capital, there is the risk that the timing of withdrawals will negatively impact the overall rate of return available to the investor. The sequence of the withdraws is critical to the retirement portfolio lasting the investor’s lifetime:
There is no way to protect against the sequence of returns risk but planning for it is important. One way is by including asset protected products such as fixed-indexed annuities in your retirement portfolio:
Additional recommendations to protect against sequence of returns risk:
If you have a concern that your retirement portfolio may be at risk for sequence of returns risk, reach out to our office anytime.
An annuity is intended to be a long-term, tax-deferred retirement vehicle. Earnings are taxable as ordinary income when distributed, and if withdrawn before age 59½, may be subject to a 10% federal tax penalty. If the annuity will fund an IRA or other tax-qualified plan, the tax deferral feature offers no additional value. Qualified distributions from a Roth IRA are generally excluded from gross income, but taxes and penalties may apply to non-qualified distributions. Consult a tax advisor for specific information. Fixed Index Annuities are designed to meet long-term needs for retirement income, and they provide guarantees against the loss of principal and credited interest, and offer the reassurance of a death benefit for your beneficiaries. The interest credited is limited by either placing a cap on the amount of interest that can be earned (“cap” rate) and/or requiring a specified rate that must be surpassed within the index before interest will be credited (“spread rate”).
The interest credited on your contract may be affected by the performance of an external index. However, your contract does not directly participate in the index or any equity or fixed interest investments. You are not buying shares in an index. The index value does not include the dividends paid on equity investments underlying the equity index or the interest paid on any fixed-income investments underlying any bond index. These dividends and interest are not reflected in the interest credited to your contract. Interest, if any, will vary depending upon the allocation option you choose. Choosing several allocation options (“diversifying”) does not ensure that interest will be credited. No allocation option provides the most interest in all market scenarios.
Charlie leverages his extensive background to structure insurance-based plans to protect families and businesses. He is a rare individual who believes the client relationship is the most important aspect of securing and protecting a family’s future. Charlie has been a financial advisor and insurance specialist for over 20 years. Contact us today to schedule your first appointment.