What if this turns out to be a terrible time to retire?

Pre-retirees and new retirees concerned about sequencing risk can take steps to protect themselves.

Christine Benz 14 September, 2018 | 5:00PM

Bumps in the road are inevitable in any investing horizon of 25 or 30 years: Indeed, the past 18 years have been pockmarked by two major bear markets. But for new retirees, those downturns can prove especially painful and even lethal. The reason is what retirement researchers call "sequencing risk" or "sequence of return risk."

That means that encountering big losses early in retirement while simultaneously spending from a portfolio reduces the amount of assets that are in place for the market's eventual recovery. Retirees who encounter a weak market environment later in their retirement years--say, when they're in their late 70s or 80s--are much less at risk for this problem than are early retirees. They've made it through the danger zone of their early retirement years, and their now shorter life expectancies mean their portfolios don't have to last as long.

In some respects, the market environment that you encounter over your own specific retirement horizons is what it is; you don't have any power to control when stocks drop, bond yields shoot up, or spending-power-eroding inflation materializes. But there are a few tactics you can avail yourself of to ensure that if the market gets off to a nasty start during your retirement years, you won't deal your portfolio a death blow. Here are some of the key ones to consider.

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About Author

Christine Benz

Christine Benz  Christine Benz is Morningstar's director of personal finance and author of 30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances and the Morningstar Guide to Mutual Funds: 5-Star Strategies for Success. Follow Christine on Twitter: @christine_benz.