Retirement spending and investing: A primer on risks

A RETURN assumption of 6 to7 per cent per annum seems respectable for a retirement portfolio. But did you know that the timing of a bear market when you are in retirement could wreak havoc on your savings? JP Morgan Asset Management publishes a Retirement Insights series, which incorporates Singapore and other Asian numbers into its analyses.

A recent paper, "Timing Retirement'' addresses issues around investing and spending in retirement, rather than saving for retirement. There are six key risks that should be addressed, it said. These include risks relating to longevity, withdrawal rate, housing, inflation and sequence of returns. "A portfolio that has been receiving regular savings, invested with a long-term strategy, must now meet two demands - current income to meet ongoing spending needs and sufficient growth in assets to keep pace with rising costs over a long horizon," it said. The paper is co-authored by Michael Falcon, chief executive of Asia Pacific Global Investment Management for JPAM; Tai Hui, chief market strategist (Asia); and S Katherine Roy, chief retirement strategist for JP Morgan Funds.

The sequence of return risk, for instance, refers to the risk of poor market returns early in retirement when wealth is typically at its peak. At the same time, strong market returns in this period can act as a tailwind, and make retirement funding much easier, said the study.