A tale of two retirees and their fortunes

THIS is the ninth instalment of our retirement series. In my previous columns, I shared how our proprietary tool "RetireWell" is used to give our client David, 59, a reliable income stream throughout his retirement years. I also wrote about how holistic retirement planning is not just about having enough wealth but also about having a purpose-driven retirement life. (You can read the unedited version of the earlier articles at www.providend.com/articles/).

One of the key success factors in achieving the financial aspects of our retirement goals is the ability to mitigate investment risks. Often, this is taken to be volatility risk as well as the risk of losing your capital or not getting required returns when you need it. In previous articles, I have shared some ways to mitigate these risks. But there is another type of investment risk that is often ignored - sequence of returns risk.

Sequence of returns risk is the risk of receiving higher and positive returns during the early years of accumulation and getting lower or negative returns in the later accumulation years. It is also the risk of lower or negative returns early in the retirement period when withdrawals are made. To best illustrate this risk, let us look at Tables 1 and 2. The tables are condensed due to space constraints.