ne of the challenges advisors face when preparing and managing a client’s retirement plan is to reduce the risk of the client running out of money during their retirement years. Some of the questions advisors often grapple with are:
- What if the client lives longer than the typical life expectancy?
- What if the client retires during a great financial crisis or a pandemic?
- How much growth assets and offshore exposure should the portfolio hold?
- How do you manage market risk in the portfolio?
These are just some of the questions our research has focused on over the last few years. The aim was to have an evidence-based framework to help advisors navigate the difficulty and dilemma of investing during a client’s retirement years.
Our research focused on developing strategies to address two key considerations when managing a portfolio for retirement:
Sequence risk
While sequence risk is not as important in the accumulation phase of a client’s investment journey, it can make or break them financially, and emotionally, during the decumulation phase. Clients retiring at the start of a bull market often have a much better investment experience than those starting their retirement journey just before a major market correction or an adverse event like the COVID-19 pandemic.