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Understanding the Sequence of Returns Risk:

Oct 27, 2020 01:31PM ● By Chuck Tashjian

Why Timing Can Be Important in Retirement 

Although “time is money” is a popular adage, when it comes to retirement, it’s often timing that matters most. Significant losses or depletions to your savings early in retirement can shrink your nest egg. This is known as the sequence of returns risk, and it is an important concept to know about so you can adequately plan for your financial wellness in retirement. 

Let’s take a closer look at some important considerations that can help create financial security later in life. 

Avoiding early losses. Losses and significant depletions occurring early in retirement can have significant consequences for your portfolio. Reducing the size of your retirement nest egg means that any possible future gains would now accrue off a smaller base, so you may not have ample time to benefit from a market recovery, particularly if you need to make additional withdrawals from your retirement account. 

Minimizing risks yet maintaining equity exposure. It may seem that a simple solution for reducing a retiree’s sequence of returns risk would be for you to reduce your equity holdings in your portfolio in favor of fixed-income investments. However, this approach compromises the portfolio’s upside potential and may lead to quicker– and premature – reduction of your long-term savings.

Finding solutions that hedge against risk. Whether you’re in your 40s or 50s and looking for upside investment potential, or are nearing your retirement years and find guaranteed options more appealing, annuity solutions can address a range of long term retirement planning needs. Income annuities are a useful hedge against sequence of returns risk for two main reasons:

1) they provide a guaranteed source of lifetime income that is not correlated to market ups and downs or interest rate fluctuations, and

2) annuity income, lowers the withdrawals that you might need to take to cover expenses. This is particularly good news should the market perform poorly in the early years of one’s retirement because these solutions can help retirees avoid selling at the bottom. 

Closing the “risk gap” supports growth. Often emotions can influence your investment decisions, particularly if you’ve been burned before. Fear of losses may leave worried investors sitting on the sidelines. Often, there’s a gap between the exposure investors are willing to take and the exposure that may be needed to potentially grow your retirement nest eggs. A variable annuity with the purchase of an optional accumulation benefit rider addresses this “risk perception gap,” because it can provide equity exposure coupled with principal protection on the initial investment. Those who utilize this retirement planning solution aren’t facing sequencing risks during those critical, early years of their retirement. 

Without proper planning, the sequence of returns early in retirement can have a significant consequence to your financial well-being later on. Let’s talk about your priorities and work together to discuss strategies that ensure you can enjoy the retirement you’ve worked hard to create. 

Important information: 

Guarantees are based on the claims‐paying ability of the issuer. For variable annuities, guarantees do not apply to monies allocated to the variable investment options as they are subject to market risk and will fluctuate in value. 

Withdrawals from annuities may be subject to ordinary income taxes and, if made prior to age 59½, may be subject to a 10% IRS penalty. Surrender charges may also apply. 

Certain New York Life variable annuites provide access to an accumulation benefit rider called the Investment Preservation Rider 4.0(IPR) which guarantees all premium payments from a loss that are made in the first policy year (less any proportional withdrawals) after the completion of a holding period. The IPR provides principal protection but does not protect the owner’s investment from day‐to‐day market fluctuations or against losses that could be realized prior to completion of the holding period. 

Annuities contain certain fees, risks, limitations and restrictions. Investors should speak to a financial professional for costs and complete details 

Please consider the charges, risk, expenses, and investment objectives carefully before purchasing a variable annuity. For a prospectus containing this and other information, please contact a financial professional. Read the prospectus carefully before investing or sending money. 

In most jurisdictions, the form numbers are as follows (state variations may apply): New York Life 

Guaranteed Lifetime Income Annuity is ICC11-P102 (it may be 211-P102); New York Life Premier Variable Annuity II (ICC15-P301, or it may be 215-P301); Investment Preservation Rider 4.0 ((ICC19V-R01 or it may be NC19V-R01). Certain features and benefits may not be available in all states or jurisdictions. 

Annuities are issued by New York Life Insurance and Annuity Corporation (NYLIAC) (A Delaware Corporation). Variable annuities are offered through NYLIFE Securities LLC (Member FINRA/SIPC), a licensed insurance agency. Both NYLIAC, and NYLIFE Securities LLC are wholly owned subsidiaries of New York Life Insurance Company (NY, NY). 


This educational, third-party article is provided as a courtesy by Michael Damon Agent, New York Life Insurance Company and a Registered Representative of NYLIFE Securities LLC (member FINRA, SIPC), a Licensed Insurance Agency and New York Life Company, 201 Jones Road Waltham MA 02451]. 

To learn more about the information or topics discussed, please contact Michael Damon, agent, New York Life Insurance Company at (508) 321-2101. Neither New York Life, nor its agents, provides tax, legal, or accounting advice. Please consult with your professional advisor for tax, legal or accounting advice.