Little talked about, but this idea has major implications for retirees.
Two portfolios (the two top dashed lines in the chart above) with the same returns, not surprisingly, will without end up at the exact same point despite the sequence of their returns being different. Meaning, it doesn’t matter in which order the returns happen as long as the returns are the same overall.
However, the portfolios (the two solid lines) with fixed withdrawal rates end the 30-year period at vastly different points based on when market drawdowns occur.
When taking distributions, timing matters.
A sound financial plan and asset allocation when approaching and entering retirement can help to mitigate what’s called “Sequence of Returns Risk."
-Paul R. Rossi, CFA