When determining how long into retirement your savings will last, portfolio returns are certainly a factor, and the higher the return the better, obviously. But the order or “sequence” of returns will also impact your savings’ longevity. Returns change over time—portfolios don’t earn the same rate of return year after year. Regular withdrawals continue to reduce your portfolio’s dollar value, and that dollar value is the amount upon which future returns compound. So, if a large number of negative return rates occur at the start of your retirement, it will naturally reduce the base upon which future positive returns can compound. When this happens, it reduces the amount of income you can withdraw, so your savings may run out sooner than if the returns had been positive at the start of your retirement.
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