The only difference between 1973’s retiree and 1974’s was in their start and end dates, giving them 33 overlapping years. In fact, their long-term returns in the absence of withdrawals were very comparable—5.23% for 1973’s retiree and 5.1% for 1974’s.

Factoring in withdrawals, however, they experienced dramatically different outcomes.

The researchers found that the 1973 retiree, who left work in a severe bear market decline, would have run out of money after just 23 years in retirement. By postponing retirement just one year, however, 1974’s retiree—who left work at the tail end of the bear market—would have maintained a balance of roughly $300,000 for most of the 35 years, and was able to leave a bequest of about $125,000.

Clients Are Listening To Tough Truths
Before entering financial services, Lucas Minton, a dually registered investment advisor and founder of Minton Wealth Strategies in Cabot, Ark., says he worked with a “quasi-state organization” that was involved in Medicaid processing.

“When you work with Medicaid, you see a lot of retirements that go off the rails,” he says. “Those situations are incredibly painful to see, and keeping retirements and legacies from going off the rails is something I’m very passionate about.”

Minton says his early days in the industry coincided with the financial crisis, which he describes as one of those defining events where one remembers everything leading up to it and everything that happened after. “If someone had retired in that time frame, they were probably back to work by 2012,” he says. “We spend decades worrying about returns, and of course that’s important. But mitigating risk is just as important, and it’s never really talked about. Over the last few years, I’ve felt like I was John the Baptist preaching in the wilderness, and no one’s listening.

“Well, now they’re listening,” he continues. “Above all, I tell them, they can’t take on more risk to support an income level. At some point they might have to adjust their income down to make it last.”

Like Minton, Perkinson says she’s been talking with clients about the concrete realities of retiring in a down market since the spring, using actual dollars, not percentages, “because people can understand the dollars.”

“During regular markets, you’ll have $10,000 a month, but if the market goes down to X, you’ll get $7,000. Can you live on that?” she asks.

So far, the short answer has been yes, she says, even for clients who initially doubt it. Many of them, after all, have done it recently.

“We talk about what they did during the pandemic when they stopped spending money in April 2020 because they didn’t know what would happen. They know they can live on spending less,” she says. “And if they still don’t believe me, I tell them to go back and look at their bank statement for April 2020 and then compare that to August 2020.”

Sequence Risk Strategies
But there are other things experts can do with clients before curtailing spending. The first and most obvious possible tweak to a client’s retirement plan is to look for flexibility in the retirement date.

Hopkins says that by pushing back the date, even by just a year, clients will continue earning income as opposed to spending down assets, and they’ll be starting retirement closer to the next bull market. They’ll also need one less year’s worth of assets.

“We’re not talking by five years. Even just six months could make a difference with sequence risk,” he says.

Granted, not all clients will be able to do that, he admits. Their health might force them to retire anyway. And if there’s a recession, they might lose their job and not have another one to jump to. But even then, there are good strategies to avoid sequence risk.

One is to look at the investment allocation leading up to and following a retirement date. “The three years leading into and the three years after retirement should be the most conservative of your investment life,” Hopkins says. “That way you’re preserving your assets at the most critical time.”

After that, clients can return to either a steady equity glide path—or even take a counterintuitive rising glide path to ensure future growth. If they need additional income in those three years after they leave work, their advisors should help them plan for alternative sources to use as a bridge: borrowing against a life insurance policy, for example, or even taking out a home equity loan, he says.

“I’m not saying borrow for three to five years. Just know that if the market drops you can pull from somewhere besides your equities,” Hopkins says. “Use those as the spending mechanism for the down market.”

At Sensible Money in Scottsdale, Ariz., founder and retirement planner Dana Anspach takes a page from pension plans. “We look at building a portfolio much like they do. They have to deliver monthly checks, and we have to deliver monthly checks,” she says. “So we’re going to need a portfolio structure that’s basically an all-terrain investment vehicle.”

That means using equities for long-term growth and bonds to cover cash flow, Anspach says, adding that she does not want her clients relying on dividends for income. Ideally, she’ll start working with a client 10 years before they retire so she can effectively ladder bond maturities to create income for each year of retirement.

“We hold to maturity, so we’re not concerned with fluctuation in bond prices,” she says. “This is very different from what people might do in the accumulation phase. In the accumulation phase, it’s all about opportunities. You can always buy something new without disrupting what you already hold.”