{"id":9879,"date":"2021-09-30T15:48:00","date_gmt":"2021-09-30T15:48:00","guid":{"rendered":"https:\/\/zackspcg.com\/blog\/?p=9879"},"modified":"2022-02-26T13:05:37","modified_gmt":"2022-02-26T13:05:37","slug":"avoiding-the-double-whammy-of-portfolio-withdrawals-in-weak-markets","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/avoiding-the-double-whammy-of-portfolio-withdrawals-in-weak-markets\/","title":{"rendered":"Avoiding the ‘Double Whammy’ of Portfolio Withdrawals in Weak Markets"},"content":{"rendered":"\n

Angela T. from\nKenosha, WI asks: <\/em>Hi Mitch, I\u2019m retiring at the end of the year and plan on\nwithdrawing $2,000\/month from my Rollover IRA. I\u2019m worried that just as I start\nmaking withdrawals, the market is finally going to start going down (just my\nluck). Do you have advice on how to navigate this issue?<\/p>\n\n\n\n

Mitch\u2019s Response:<\/strong><\/p>\n\n\n\n

Thanks for writing, Angela. You ask an important question,\nand there is a financial term for what you\u2019re referring to, called \u201csequence of\nreturns\u201d risk. This risk is basically defined by what happens when sizable\nportfolio withdrawals collide with weak market returns. If money is coming out\nof a portfolio while it\u2019s also declining in value, the result can be a \u2018double\nwhammy\u2019 downside impact on your net worth.<\/p>\n\n\n\n

Let me give you and readers an example of how this risk can\nplay out. <\/p>\n\n\n\n

Say, for instance, that a retiree on January 1, 2000, had $1\nmillion invested in the S&P 500, and they planned to withdraw $40,000 every\nyear plus 2% extra each year for inflation. Because of the long bear market\nexperienced in 2000 \u2013 2002, the 2008 Financial Crisis, and the Covid-19 bear,\nthe remaining balance at the end of 2020 would have been $470,000. It\u2019s not\nnecessarily that the portfolio endured three bear markets \u2013 it\u2019s that the first\nbear happened right away.1<\/sup><\/p>\n\n\n\n

_____________________________________________________________________________<\/p>\n\n\n\n

Learn the 7 Secrets of Building an Effective Retirement Portfolio<\/a><\/strong><\/p>\n\n\n\n

Get our free guide to learn how to create a retirement investment plan that can withstand any market\u2014and potentially help you achieve your goals.<\/p>\n\n\n\n

You’ll\nlearn the secrets of successful retirement portfolios, including the right way\nto set your goals and retirement needs, as well as the key basics of\ndisciplined investing, based on our decades of experience.<\/p>\n\n\n\n

If you have $500,000 or more to invest and want to get answers to the questions above, click on the link below to download this guide today!
\u00a0
Download Our Free Guide, \u201c7 Secrets to Building the Ultimate DIY Retirement Portfolio\u201d<\/a>2<\/a><\/sup><\/strong><\/p>\n\n\n\n

_____________________________________________________________________________<\/p>\n\n\n\n

That\u2019s because sequence of returns risk played an outsized\nrole in this portfolio being worth less than half of where it started 20 years\nprior. Because the S&P 500 lost -37% over the first three years, and <\/em>the retiree was withdrawing $40,000\neach year, the portfolio was simply unable to recover even though the market\nbounced back every time. <\/p>\n\n\n\n

Fortunately for retirees or soon-to-be retirees, there are a\nfew things you can do to navigate sequence of returns risk. The first would be\nto set aside a year or more\u2019s worth of income in cash. Doing so means taking\nyour monthly or annual withdrawals for living expenses while your portfolio\nremains invested according to your needs and longer-term goals. In other words,\nyou do not need to be selling positions to raise cash potentially during a\nmarket downturn.<\/p>\n\n\n\n

Another option is to try and limit spending during a market\ndownturn and\/or during recessions. If your budgeting allows, it could be wise\nto spend less during challenging market environments and make it up later once\nthe market and the portfolio recovers. Being able to control your spending\nbased on market conditions is a key factor in managing sequence of returns\nrisk. <\/p>\n\n\n\n

In the current environment, given your situation of retiring\nat the end of the year, I do not see an issue with raising a year or two\u2019s\nworth of cash now to provide for your income needs, which will allow you to\nleave your portfolio alone (i.e., invested according to your long-term goals\nand needs) as the market cycle enters its next phases. These are the types of\ndecisions we at Zacks Investment Management can help you weigh, by running cash\nflow analyses and testing different options and outcomes. If you\u2019d like this\ntype of analysis and help, please do not hesitate to reach out. <\/p>\n\n\n\n

I would also like to share some additional steps you can take to help protect your investments and create a portfolio that meets your financial goals. To help you do this, I recommend reading our guide,\u00a07 Secrets to Building the Ultimate DIY Retirement Portfolio<\/em>.3<\/sup>
\u00a0
If you have $500,000 or more to invest, get this guide to learn our ideas on the step-by-step process of building and maintaining a retirement portfolio that will potentially help you reach your goals and enjoy a secure retirement.<\/p>\n","protected":false},"excerpt":{"rendered":"

A little planning can help you avoid the “sequence of returns” risk of making withdrawals in a declining market <\/p>\n","protected":false},"author":3,"featured_media":7436,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[66,71],"tags":[],"class_list":["post-9879","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-mitchs-mailbox","category-private-client-group"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/9879","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=9879"}],"version-history":[{"count":1,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/9879\/revisions"}],"predecessor-version":[{"id":10299,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/9879\/revisions\/10299"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=9879"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=9879"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=9879"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}