The fragile decade is an exhilarating yet precarious time, encompassing the last five years of working life and the first five years of retirement. This period can make or break your entire retirement plan. 

For those who have yet to reach this stage, paying close attention now will better prepare you for a future that will arrive faster than you expect.

Consider the analogy of mountain climbing. The journey starts with meticulous planning for the ascent, striving to reach the summit. However, mountain climbing is not just about standing at the peak; it’s equally about descending safely. Climbers often assert that planning and executing the descent is more challenging than the ascent.

Similarly, both stages of our financial journey—accumulation (the ascent) and withdrawal (the descent)—are best managed with thorough planning before embarking on the journey. 

Some investors become overly focused on accumulating wealth, aiming to reach the peak and retire triumphantly. However, it's crucial to plan not only for reaching the withdrawal stage but also for navigating through it. The goal of your investment portfolio is not merely to amass the largest possible mountain of assets but to ensure a steady, sustainable cash flow that supports a comfortable, stress-free retirement.

Once you’ve secured your financial future, it's essential to avoid unnecessary risks. Success should be measured by achieving your personal goals rather than outperforming the market. As you approach your fragile decade and focus on meeting your monthly expenses, remember that the true measure of success is meeting your financial needs, not surpassing an arbitrary market benchmark. 

It can be challenging to ignore the financial successes of others, but as John Pierpont Morgan noted, "Nothing so undermines your financial judgment as the sight of your neighbor getting rich." Stay focused on your own goals, and don't succumb to the temptation to keep up with the Joneses.

One of the main challenges during the fragile decade is sequence risk, the danger that the order of market returns will negatively impact your planned withdrawals. During the accumulation phase, compound interest works in your favor, but during the withdrawal phase, it can work against you. For example, if you retired at age 57 with $1 million in 2000 and started with an annual withdrawal of 4% ($40,000), increasing each year by 3% for inflation, the sequence of returns could significantly affect your portfolio's longevity.

If the returns followed Sequence 1 (actual annual returns of the S&P 500 from 2000-2020), by age 77, you would have just enough to cover two more years of withdrawals. Conversely, if the returns followed Sequence 2 (the same returns in reverse order), you would have almost $1.8 million left by age 77. Despite having the same average annual return and total withdrawals, the sequence of returns drastically alters the outcome. This example illustrates the critical impact of sequence risk, especially during market downturns early in retirement.

While you can't control market fluctuations, you can focus on factors within your control: your monthly contributions and withdrawals, setting realistic goals, making informed investment choices, and adhering to a dynamic planning process. Planning for your fragile decade is akin to playing chess; you must see the whole board and anticipate potential moves.

To ensure success in receiving a reliable income during the entirety of your retirement, studies have proven that including a floor of guaranteed income substantially improves the probability of achieving that objective.  In addition to Social Security and pension income, annuities are frequently the best option to provide an additional floor of guaranteed lifetime income.  By including these valuable products in your retirement income mix, the ability to safely assume levels of risk in an investment portfolio is improved, and the adverse effects of a negative sequence of returns are mitigated.  We help clients approach the fragile decade by evaluating options for selecting products that best fit their situation.

Many people have learned about the power of using the Safe Money approach to reduce volatility. Our Safe Money Guide is in its 20^th edition and is available for free.  

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