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Dynamic Retirement Spending For Changing Times
Retirement doesn ’ t look the same as it did three years ago . Here ’ s how you can help clients turn their assets into income to meet their spending needs .
By Colleen Jaconetti
TODAY ’ S RETIREES , AND THOSE WHO ADVISE THEM , face a very different market environment from the one they faced even a few years ago . When 2019 ’ s retirees began to draw down from their portfolios , they were doing so at the tail end of the longest bull market in history . More recent retirees have confronted something completely different over the past three years : a quick but severe bear market in early 2020 , historic increases in inflation and interest rates , a historically poor bond market in the first half of 2022 , and negative returns for both broad market equities and fixed income at the end of 2022 . So far in 2023 , market volatility continues .
That means these retirees are vulnerable to “ sequence-ofreturns risk ”— when poor investment returns come early in their retirement , at the same time the clients are beginning their withdrawals , two phenomena that together can signif- icantly diminish the value of portfolios . Meanwhile , people are also living longer — and thus increasing the possibility of outliving their savings . Both these risks can weaken investors ’ chances for a successful retirement .
But advisors can help by developing prudent spending strategies for these clients , as well as implementing tax-efficient withdrawal strategies to help dampen the risks .
A Prudent Spending Strategy
It ’ s a complex process for U . S . retirees to develop and oversee their portfolio spending strategies . As their life expectancies increase and defined benefit plans become less available to them , they ’ ll need more complex approaches , and that ’ s because they are often reaching simultaneously toward two goals seemingly at odds : One is to maintain a relatively consistent level of their current spending while the other is to
50 | FINANCIAL ADVISOR MAGAZINE | JUNE 2023 WWW . FA-MAG . COM