What You Need to Retire In 2023

Anyone nearing retirement must believe they are doing so at the worst time. As you approach retirement, a portfolio is at its peak just before savings are withdrawn. The S&P 500 is down 20% this year, and most portfolios have lost value.

The sequence of return risk refers to this. Sequence refers to the order and timing of poor investment returns that can significantly impact your retirement fund’s length. Similarly, Wade Pfau, a professor at the American College of Financial Services in King of Prussia, Pa., agrees. You must sell more shares to make the same amount, and your portfolio won’t even if the market recovers.

According to Voya Investment Management’s Amit Sinha, recent retirees are particularly vulnerable because they rely on their retirement fund for up to 30 years to come.

In retirement, retirees migrate to safer, more conservative assets. These investors may have benefitted from substantial early-retirement gains.

Market fluctuations have no meaning when retirement is a decade or more away. Sinha states, let compounding work for you and recuperate over time. Retirees don’t have that luxury. If this describes you, you can reduce the harm, but first, examine what it will imply for your portfolio.

Depending on how you react, the harm may not be as severe as you imagine.

How bad?

Sinha has done return risk simulations for every year since 1977, including the 2007 financial crisis (-51.93%), the 2000 dot-com disaster (-36.77%), and 1987’s Black Monday (-33.51%). His research’s central message? Don’t go all-cash. He contrasted the investor’s savings if he had started retirement with all cash instead of a 40/60 stock/bond mix. Even in the worst sequence risk situations, equities and bonds beat cash. In some cases, the initial several years were unpleasant, but investment portfolios always won, Sinha adds.

For the first five years of retirement, someone who retired during the dot-com bubble would have had 10% to 20% fewer savings than someone who retired after the crash. Both approaches then broke even. By the 20th year of retirement, the investment portfolio had doubled the all-cash portfolio’s value.

Sinha also analyzed how long funds would endure after a significant loss in the first year of retirement, assuming a 4% initial withdrawal rate and a 5% long-term annualized return.

If your portfolio lost 25% in year 1, it should endure 40 years. He argues that the portfolio should survive 18 years even if it loses 50%, adding that the odds of a one-year 50% decline for a balanced stock-bond portfolio are minimal.

Balanced portfolios rebound when markets do. On average, bear markets last 289 days, and some recover quickly.

The pandemic was an example. Pfau thinks those who cashed out missed the recovery. Pfau recommends recalling 2021’s significant results. He claims last year’s markets were exceptional. With this year’s dip, average returns are closer to the 5% to 10% we forecast than last year’s 25% increase. When seen this way, your portfolio performance may not be far behind.

Be Lucky

What should you do if cashing out now is a mistake? Here are ways to protect your funds from a sequence of return danger. Try reducing withdrawals. Financial theory says you may take 4% of your original retirement account each year for 30 years, even after an initial loss—a millionaire who started withdrawing $40,000 a year before the bad market might continue doing so now.

To be safe, decrease your withdrawals. 4% of a $800,000 portfolio would be $32,000 a year. Pfau advocates taking out more in excellent investing years and less in poor ones. When the market is down, make smaller withdrawals to reduce portfolio risk. Living on less income may not be practical, but reducing withdrawals leaves more of your portfolio for a comeback.

Non-market assets.

Pfau proposes using other assets, such as a life insurance policy or a reverse mortgage, to generate income when the market is down. When the market rebounds, you decide whether to repay the loans based on how much you want to give heirs.

Portfolio diversification.

Diversifying investments might speed up portfolio recovery. Sinha suggests diversifying if your holdings are all U.S. corporations. So you’re not betting on the U.S. economy rebounding.


Shift a portion of your wealth into an annuity to reduce market volatility. Some annuities give lifetime payouts that aren’t affected by market returns. Creating a non-market-dependent income stream helps lessen the sequence of return risk, says Thrivent’s Dave Kloster.

Pfau says it may be tougher to fund an annuity if your portfolio is down. He recommends this technique if you still have money to buy an annuity or can wait until the market recovers.

Start slowly

This next method won’t benefit a new retiree now but remember it if you want to retire once the market recovers. Pfau advocates investing more cautiously in early retirement because of a sequence of return risks. 

Instead of 60/40, consider 30/70. In the first decade of retirement, boost your stock allocation to 60/40, and this method avoids a significant loss while your portfolio is the greatest.

Retire later

You can keep working while your portfolio recovers if you’re not retired. You might invest part of your profits at discount prices and avoid squandering your money. 


 In challenging times, a financial advisor should review your retirement strategy. Kloster argues a well-designed plan can withstand market volatility.

The conversation may make you feel more confident in the figures and your plan’s longevity. He explains that you must be confident in your plan to avoid selling cheap and purchasing high. Find an appropriate risk level; remember, you can’t time the markets.