From the illustration we can see that for anyone who is planning for retirement, sequence of returns is a factor too important to ignore. But what are the strategies to deal with it?
There are two effective ways to deal with the potentially bad sequence of returns.
a. Use Fixed Income Annuities
Every retiree should create a sustainable income strategy for a portion of one's portfolio. One or more deferred fixed-income annuities offered by highly rated insurance carriers, including deferred-income annuities and fixed-index annuities with income riders, can be used for this purpose.
b. Adopt a Laddering Strategy
A laddering strategy can be employed after a portfolio experiences sizable gains. Portions of equity portfolios can be transferred into single- and flexible-premium fixed income annuities with different start dates and lifetime income amounts when this occurs. In addition to selling individual stocks at or near market highs and diversifying sustainable income sources, this will often result in increased lifetime income distribution possibilities. This can be done with non-retirement and retirement investment accounts.
When to Implement
Transfers of a portion of equity portfolios into fixed-income annuities should begin at least 15 years before planned retirement, this will allow ample time to maximize the deferral period before beginning income withdrawals as well as the number of potential opportunities for implementing this strategy.