Significant losses or depletions to one’s retirement portfolio early into retirement could derail one’s plans by diminishing a retiree’s nest egg. This is known as the sequence of returns risk.
Early losses or significant withdrawals occurring early in retirement after a market downturn can have severe consequences to a retiree’s portfolio. Because any possible future gains would now accrue off a smaller base, a retiree may not have the time to benefit from a market recovery, particularly if they need to make additional withdrawals to their portfolio.
In the current inflationary environment, one’s purchasing power is reduced on vital goods and services. This can be particularly hard on those whose retirement income isn’t keeping pace with inflation. Compounding this problem, retirees experience inflation at higher rates than other consumers because so much of their expenses can involve health care.
Fear of outliving one’s assets is common for retirees. For those who will live off their accumulated savings, it can be challenging to develop a spending strategy that ensures they will have adequate means to last for 20, 30 or 40 years. Many Americans underspend their savings to ‘self-insure’ their retirement while others spend too aggressively and deplete their savings.