7 steps on the road to retirement
Step 3. Know the sequence
of return risk
An average annual return over the course of 20 or 30 years doesn’t mean much when it comes to taking retirement income. There will be “good” and “bad” years, and the order in which they occur makes a significant difference. Large investment losses early on in retirement, especially when combined with systematic withdrawals for income, strain a portfolio and hinder its recovery over time.
In order to keep clients from having to sell off investments during inopportune times for income, Thornburg suggests that clients have a cash flow reserve ladder with allocations toward cash and short-term liquid holdings. Clients also ought to diversify their investment asset classes and use dividend-paying stocks to raise income without depending entirely on capital appreciation.
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