One of the biggest risks especially for retired people is called “Sequence of Returns Risk”.

https://www.investopedia.com/terms/s/sequence-risk.asp

So how can one handle this risk in retirement? Well, there are many ways to tackle this. Let us look at some of the options…

http://www.subramoney.com/2017/11/managing-sequence-of-return-risk-retirement-portfolio/?frame-nonce=bd2d675595

a) Use the bucket theory

http://www.subramoney.com/2018/06/bucket-theory-for-post-retirement-investments/?frame-nonce=bd2d675595

One more way of handling the Sequence Risk is using Reverse Mortgage. RM is not a popular product in Bharat (attempting to change from India). Also not too many IFA may be familiar with this product. Not too many people use this product – for whatever reasons. So this combination has meant that RM is not popular. However, it is time that we all woke up to RM – and how to use it.

When a person is 62 years of age a person is eligible to have his house given in RM. So when a person retires at say age 60, and starts living off his retirement corpus. Assuming that he has not created buckets of his assets he could be worried if the returns are not good. Say he has a house worth Rs. 1 crore and he is eligible for a Rs. 5000 per month installment. This means say at age 72 he will need to withdraw Rs. 5000 less from his equity corpus. This will mean that his equity portfolio will be protected – especially during bad times. These are some of the methods of managing SR –

Flexibility in spending is also important to managing sequence risk. “If a person is  able to cut his expenses when the market declines, he may not have to sell off as much of his portfolio at that point. You  can also reduce volatility for withdrawal by building a retirement income bond ladder, incorporating income annuities. Of course creating a real huge portfolio is one amazing way of reducing SR.

Creating “buffer assets” to avoid selling at losses is the final way to address sequence risk, and that’s where reverse mortgages come into play. Of course if a client has some spare assets like a spare house, or land etc which he is not considered in his total portfolio, that could also be sold off when the equity markets are low.

Anybody with other ideas?