Market risk and retirement


If you are a stock market observer, you know that the market has increased significantly since last fall’s election.

One can speculate whether this is a result of the election outcome and expectations for economic growth or a reaction to continuing growth in corporate profitability. Whatever the cause-probably some combination of both- the old adage still applies that what goes up, must come down. 

Market technicians have been arguing for some time that stocks are generally overvalued but have risen anyway because the market is one of the few places people can invest their money and earn a reasonable return. That may have pushed the market up for the last year or two, but that cannot hold it up indefinitely. At some point, the market will fall as it seeks a more reasonable balance between stock prices and underlying value. That is the definition of a correction – correcting out of balance conditions.

For the long-term investor, while corrections are unnerving, they tend to run their course, and the market recovers its losses over time. However, there is one group of investors for whom this situation can be more than just unnerving, those who retire just before or during a downturn.

That is due to a situation known as sequence-of-returns risk. Basically, this risk comes from removing funds from a portfolio as it is falling, which many retirees must do to supplement other sources of income in retirement.

By withdrawing funds as the market falls, the decline in the portfolio’s value is exacerbated, the portfolio’s ability to generate income to finance the retiree’s lifestyle is reduced and the period of time needed to rebuild the portfolio to its former size is extended, if it can achieve that former value at all. In short, due to the unfortunate timing of a retirement, the retiree’s future financial stability can be forever impacted in a negative way.

The last time this occurred was in 2008-2009 when the market dropped 55 percent; people who retired then and immediately began to withdraw money from their retirement plans experienced this risk first-hand. With Baby Boomers retiring at the rate of about 4 million people a year, this risk is magnified, and the economic consequences it could cause will be significant when the market corrects.

So, what can you do if you are planning to retire fairly soon to protect yourself against this risk? Reduce the percentage of your retirement savings invested in the stock market – diversify into some fixed income funds, consider adding fixed annuities and/or cash value life insurance and explore alternatives such as money market funds.

Diversification is always a good practice, but it is particularly important as the time frame between saving for retirement and using the funds in retirement narrows. Learn more on how to protect yourself from this risk today.

Frederic “Ric” Schilling is a Florida native, born in Jacksonville, Fl. Ric is President of Senior Guardians of America, a local North Florida firm specializing in tax reduction, long term illness planning, asset protection, probate avoidance and life income planning. Ric is a National Speaker and Advocate on Senior Issues and has been featured by the Florida Times Union and WJXT, TV-4 in Jacksonville as an authority on Estate Planning and Retirement Issues. Senior Guardians has an A+ rating with the Better Business Bureau and is a member in excellent standing with the National Ethics Association.  Contact Frederic: 904-371-3302 or  888-891-3381   Please visit:

This article is not intended to give tax or legal advice. Securities offered through Center Street Securities, Inc. (CSS), a registered Broker-Dealer & member FINRA & SIPC. Investment Advisory Services offered through Center Street

Advisors, Inc. (CSA), a SEC Registered Investment Advisor. Schilling and Associates (d/b/a Senior Guardians of America) and CSA are independent of CSS.