Don’t Let Bad Luck Ruin Your Retirement Dreams
When you retire can have a big impact on whether your money will last in retirement, but planning can manage the impact of the markets’ bust cycles.


It’s understandable if you’re disturbed by the thought of another market downturn. We’ve all known the feeling of not wanting to open an account statement after a particularly bruising stretch.
But wishing and hoping the market will go up — or at least won’t significantly decline — isn’t going to preserve your nest egg. And if you’re overly stressed about what’s happening to your portfolio day-to-day or month-to-month, it might be a sign that you’re taking on too much risk considering how close you are to retirement.
In the years just before and after you retire, your margin for error becomes much narrower. You have less time to rebound from a market correction than you did as a younger investor. And when you begin withdrawing from your investment accounts, instead of putting money in, a down market can be especially devastating.

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If your stocks experience a substantial loss in value and you find yourself having to sell more shares to generate the income you depend on, it could affect how long your retirement savings will last. That pot of money you worked so hard for may be gone much sooner than you expected.
Running out of money in retirement consistently ranks as the No. 1 fear for retirees and soon-to-be retirees. And yet, many aren’t aware of the importance of transitioning their investment plan before they retire to preserve against what financial professionals refer to as sequence of returns risk.
1990 vs. 2000: A tale of two retirees
If you take nothing else away from this article, please, just keep this hypothetical comparison in mind:
Let’s say there are two retirees — Linda and Steve. Each had $500,000 in an IRA when they retired, and both planned to withdraw $30,000 per year ($2,500 per month) to supplement their retirement income. Both IRAs were invested in the U.S. stock market. The only difference is that Linda retired in 1990, while Steve retired in 2000.
What happened to Linda? During the 1990s, the U.S. stock market had only one mildly down year. So, while Linda was able to pull out more than $300,000 for income over the course of 10 years, her ending IRA balance heading into 2000 was … wait for it … $1,625,254.
When retiring at the perfect time, the market can be an incredible tailwind.
Now let’s see what happened to Steve. You may remember that the 2000s started off with a bursting “tech bubble,” followed by 9/11 in 2001, leading to three straight years of market declines. By the end of 2002, Steve already had less than half of what he started with. And in 2008, the Great Recession took another bite out of Steve’s savings. To close out the decade, Steve had just $60,241 remaining. Steve had to downsize his retirement simply because he stopped working at the wrong time.
How can you mitigate sequence of returns risk?
Here’s the thing: U.S. (and world) history is replete with tales of boom-and-bust cycles. The average investor — who may live two decades or more in retirement — can be almost certain there will be both good and bad times ahead.
It only makes sense to do some proactive planning so that no matter what the market conditions are, you’re not left scrambling.
Prospective clients who plan to retire soon often ask if they should reduce the risk level in their portfolio. To give an informed answer, I usually suggest we do what’s called a “stress test” to see what would happen to that person’s retirement accounts in up and down years and to get an expected rate of return over time. This helps me ascertain whether someone is taking on too much risk for their expected future rate of return and how that risk could impact their ability to generate income in retirement.
A sizable majority are taking on much more risk than they say they are comfortable with. (Ask yourself if you would panic should the market go through a minor or major decline while you’re retired. If you can’t stomach much of a loss, it’s best to address your fears ahead of time.)
One way to better preserve your nest egg may be to go with a two-bucket investing strategy. With this plan, you would have a more conservatively invested “income” or “now” bucket from which you could reliably take withdrawals. You’d also have a separate “growth” or “later” bucket with investments designed to keep producing income for the future. The portfolio mix you choose for each bucket would depend on several factors, including your time horizon and risk tolerance.
Mitigating risk doesn’t automatically translate into no risk. No-risk’s evil twin is pathetically low rates of return, which can lead to other problems — including the risk of failing to keep pace with inflation. But by smoothing out the rough edges and adding a modicum of safety and predictability, an investor can have a much better chance of attaining his or her retirement goals.
In baseball parlance: It isn’t necessary to swing for the fences with every at-bat. Sooner or later, you’re going to strike out. And striking out in retirement can be disastrous.
If you’re closing in on your retirement date (and by “closing in,” I mean five to 10 years away), it may be time to get a coach. A financial adviser who is a retirement specialist can guide you through the changes you’ll need to make as you prepare a winning plan.
Kim Franke-Folstad contributed to this article.
The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.
Investment advisory products and services made available through AE Wealth Management, LLC (AEWM), a Registered Investment Advisor. Investing involves risk, including the potential loss of principal. This is a hypothetical example provided for illustrative purposes only; it does not represent a real-life scenario and should not be construed as advice designed to meet the particular needs of an individual's situation. 1871256 - 07/23

Matthew Corman, co-author of the book “Plan Now. Retire Well.,” is an Investment Adviser Representative committed to helping people achieve their retirement dreams with goal-focused retirement strategies. Recognizing that retirement planning is an important part of an individual’s financial well-being, Matthew is passionate about simplifying retirement and helping people retire comfortably. He dedicates time to understand an individual’s unique financial situation and personal needs to develop strategies appropriate to reach their goals.
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