Sequence of returns risk is the risk that an investor will experience negative portfolio returns very late in their working lives and/or early in retirement. Sequence-of-returns risk is a significant threat because retirees have little time to make up for losses that are compounded by the simultaneous drawdown of income distributions.

What happens in the market shortly before and after retirement–during the “fragile decade”–is more important than one might think. If retiring during or before a market downturn, the combination of withdrawals and poor performance can quickly deplete a retiree’s main source of income and make it difficult to recover. It is important for investors to be protected from a poor sequence of returns during this “fragile decade.” Will they be forced to retire and begin withdrawing when the market is down? Will poor returns after retirement deplete their nest egg?

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