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I'm Retired ...

Protecting your savings

When you were saving for retirement, time was on your side and you could ride out the ups and downs of the market. Time is no longer on your side as you start taking cash out of your nest egg. Market losses right before or as you begin retirement not only diminish years of smart saving, they can increase the risk that you will run out of retirement income.

Simply stated, if market losses occur as you enter retirement or in the early years of your retirement, the risk of running out of retirement income is much higher than if such losses occur later in retirement. This principle is known as the risk of the sequence of returns. For a closer look at this phenomenon, look at John and Susan.

We can illustrate the sequence of returns with the tale of two investors: John and Susan. Each started with a nest egg of $500,000 at age 65 and began taking withdrawals each year initially equal to 5% of $500,000 and increasing by 3% each year to account for inflation.

In each case, John and Susan averaged an 8.03% annual return, and both investors experienced three terrible years in the market. But, they had vastly different results because of when the market losses occurred. Here's a snapshot of three key points in each investor's life:

John's Market Losses

10.14% at age 65
13.04% at age 66
23.37% at age 67

Susan's Market Losses

23.37% at age 87
13.04% at age 88
10.14% at age 89

Because John experienced the market losses early in his retirement, he ended up running out of money at age 83. The market losses hit Susan much later in life, so she still had plenty of money left to fund her entire retirement.

John's and Susan's nest egg at age 65 = $500,000
John's Account Value at age 83* = $0
Susan's Account Value at age 89* = $1,677,975

*Represents Account Value at start of year


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Security Benefit is a leading provider of retirement plan services throughout the nation, primarily in the education marketplace. Security Benefit offers trust account programs under 401(k) and 401(a) and under §401 of the Internal Revenue Code; voluntary custodial accounts under 403(b)(7) ERISA and 403(b)(7) of the Internal Revenue Code; §457 Governmental Programs; and trust account Top Hat programs under §457(g) of the Internal Revenue Code; and Voluntary Employees' Beneficiary Association (VEBA) trust programs qualified under Section 501(c)(9) of the Internal Revenue Code.

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