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December 16, 2009, Cover Stories

Luck of the Draw

By Kerry Pechter   Wed, Dec 09, 2009

In this second installment of our series on retirement risks, we examine sequence-of-returns risk: what it is, what it can cost, and how best to deal with it.

When the world's equity markets buckled last fall like the knees of an aging, exhausted prizefighter in the late rounds of his last title shot, some investors suffered more than others.

The most battered of all, perhaps, were those who were about to retire or had recently retired, whose portfolios were still equity-rich and who planned to live on portfolio withdrawals. 

These unfortunate devils were the casualties of so-called “sequence-of-returns” risk. Also known as “timing” risk, it is the risk that you'll experience negative returns during the years shortly before or after retirement, lock in losses by making withdrawals, and dangerously shorten the life of your savings. 

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