More telling are the results of studies done through the Americans for Secure Retirement organization by Ernst and Young LLP, the venerable accounting firm. To quote, the Ernst & Young February 2009 study ( found that "almost three out of five new middle-class retirees will outlive their financial assets if they attempt to maintain their pre-retirement standard of living. The study also finds that middle-income Americans entering retirement today will have to reduce their standard of living by an average of 24% to minimize the likelihood of outliving their financial assets.

Those Americans seven years out from retirement are even less prepared, and the study estimates that they will have to reduce their standard of living by even more, an average of 37%. These reductions will be necessary even when assuming that retirees can maintain the same standard of living with income equal to 59% to 71% of their pre-retirement wages." Further, the study found that "retirees are much better prepared to have a financially secure retirement if they have a guaranteed source of retirement income beyond Social Security, such as a fixed annuity or defined benefit plan."

Such a (non-Social Security) source for, say, a married couple making $75,000 at retirement means they will have only a 31% chance of outliving their financial assets if they retain their pre-retirement standard of living. Those dependent on Social Security as their only guaranteed income have a 90% chance of outliving their money.

Other quoted key findings as reported by the study include the following:
Persons that are five to ten years away from retirement have a higher risk of outliving their financial assets than those currently at retirement age. To avoid outliving their retirement assets, these workers age 55 to 59 will have to increase their savings substantially or work beyond age 65. Otherwise, they will have to reduce their standard of living significantly more than today's retirees to minimize the risk of exhausting their financial assets.

Married couples are more likely to outlive their financial assets, due to their longer joint life spans, than singles.

Montana, Wyoming and South Dakota citizens have the highest likelihood of outliving retirement savings.

D.C., Rhode Island, Utah and New York citizens have the least likelihood of outliving retirement savings.

In a purely definitional sense, sequence risk is the risk of retiring at or just before the peak of a business cycle. Ponder for a moment the implications of the definition. Business cycles reflect periods in which the GDP, and subsequently the economy, expands and contracts.

Typically, a complete business cycle is historically observed to be about eight to ten years. In the more distant past, these cycles of growth and recession were more systemic, but since the '70s, with the demise of Bretton Woods and the beginning of the era of free markets and managed economies, growth periods have become flatter and longer while contraction periods have become sharper and shorter. Typical examples of such average patterns are the recessions of 1990-1993 or 2000-2003 and the growth periods of 1993-1999 and 2003-2008 (I've extended both recessions' duration because the initial recoveries were so anemic).

Thus, a better example of sequence risk would be to consider those who retired around 1989 or 1999. For such people, sequence risk was real and very undesirable. Why so? To understand this problem in its proper perspective, it is necessary to merge the retirement income distribution rate with the economic contraction rate of a recessionary period and compare the effects of this merged rate on post-retirement fund values.