Bear Market Playbook and Sequence Risk

What is Sequence of Return Risk

Watch as Erin Kennedy and Wes White from Patriot Wealth discuss retiring into a bear market. They address the issue of sequence risk, which refers to negative rates of return early on in retirement. Wes White suggests that retirees should have a plan to alleviate this risk, such as having core income needs covered by sources other than market-based investments. He also mentions using annuities to transfer some risk to an insurance company. Kennedy emphasizes the importance of having multiple income streams and working with a professional to navigate these risks.

Wes White and his team at Patriot Wealth believe no two retirements are equal. So, no two retirement plans should be either. They will walk you through the critical steps to craft a customized retirement plan tailored to your goals. They offer the patriot advantage for retirement, having emotion-free investing, transparency, and the highest standards of practice. You can plan smarter and live better with Patriot Wealth today.

Related Articles:

Understanding Sequence of Returns Risk

A Guide to Market Volatility

Three Tips for Retiring in a Bear Market

Transcript:

Erin Kennedy (00:16):

Hello, and welcome to Retirement Wealth Academy. I’m your host, Erin Kennedy. Thanks for being with us. This show is dedicated to helping retirees and pre-retirees sort through all the difficult and complicated questions surrounding retirement. And for the answers we turn to local experts. Today we have Wes White. Wes, it’s good to see you. Thanks for being with us.

Wes White (00:33):

Good to be with you. Thank you.

Erin Kennedy (00:34):

Today is a really important topic. I want to talk a bear market playbook. What happens when you’re retiring into a bear market? Because a lot of risk can crop up, and number one is sequence risk. What is that?

Wes White (00:46):

Absolutely. Sequence risk is referring to when we have negative rates of return early on in retirement. So if that happens, it can be a little bit scary. In fact, Erin, I was having this conversation with my mom most recently because she retired within the last year and she says, “Wes, there’s a lot going on in this world, and I know that’s not going to change, but I feel like I’m facing some very difficult issues.” And I said, “Mom, you’re totally right. I can understand how that can be a bit scary.”

(01:12):

First things first is, to help alleviate some of that sequence of returns risk, the amount of money that you need to pull out, maybe that doesn’t come all from the market, from your risk-based assets. Mom and I having this kind of conversation, I said, “Mom, you have your core income need covered.” We have these risk assets that are there to help keep up with inflation. Something that you can dip into for the travel fund and for things that you want to do, but maybe during down years, you let that go or you go on less of a extravagant vacation that year. But again, you have that optionality there. So if we have ways where we have our core income need covered, and sometimes that’s covered by things like an annuity, right?

(01:56):

Because what we’re doing there is ensuring a part of our retirement, transitioning some of that risk, whether it’s market risk or even the interest rate risk, transitioning that to an insurance company for just a portion, not for all, but just for a portion. But it can be a bit of a scary thing if you don’t have a plan. And so kind of our mantra at Patriot Wealth and the Retirement Wealth Academy really is plan smart, live better. And I think that’s what it really comes back to.

Erin Kennedy (02:23):

Does your mom feel better after talking it through with you?

Wes White (02:25):

She does, of course.

Erin Kennedy (02:25):

Good.

Wes White (02:25):

Absolutely.

Erin Kennedy (02:27):

Sometimes we just need to talk it through, but I want to make sure I’m understanding this correctly. So in a down market, if we were to tap our invested money, we’re kind of compounding our losses. So that’s why having those other income streams is really important, right? Am I understanding that correctly?

Wes White (02:42):

Absolutely. Absolutely. And things that you have in the market, maybe it’s not subject to all of the risks that, say, equities carry, or even in this day and age, the risks that even bonds carry. So you can use some unique tools, maybe that’s doing things with option strategies or whatnot. But again, just having various things, a well-balanced, diversified portfolio that can withstand some of those bear markets. Not alleviate all of it, but at least help you to stay a bit stable.

Erin Kennedy (03:09):

And working with a professional, I’m sure it’s helpful to walk through those risks because otherwise people probably would be tapping money that they don’t realize they’re putting their future retirement at risk.

Wes White (03:20):

Right. They don’t really realize how they can compound these issues if they don’t do it right.

Erin Kennedy (03:24):

Yeah. Okay. Wes, thank you so much for your time today.

Wes White (03:26):

Thank you.