Sequence of returns risk is one of the most challenging financial risks we face, for two reasons. First, an unfavourable sequence of returns can have devastating consequences, and secondly, it's largely an accident of birth, or, more precisely, of retirement date. It is perhaps the cruellest risk of all — the risk that fate will deal you a shocking hand.
As ROBIN POWELL explains in his latest article for Sparrows Capital, 1966 was a brilliant year for English football.. but the worst possible year in which to finish work.
Will 2024 be a good year, or a bad year, to retire in? We just don't know. But retirees and their advisers need to be prepared.
There are few things more depressing than the thought of running out of money before we reach the end of our lives. Most of us would like to leave a legacy for our children. But, for many people, a more realistic prospect is having to rely on those children, state handouts or both, to support them financially in their final years.
Financial advisers have a crucial role to play in ensuring that this is a fate their clients avoid. In many cases, the primary focus of the advice profession has been on wealth — investing enough money, and taking sufficient risk, to ensure that clients build a decently sized retirement pot. But, in future, a bigger challenge for advisers could be managing decumulation — helping clients to enjoy their wealth to the full, whilst also ensuring, whatever happens, that they don’t outlive their money.
There are several reasons why this is. The first is increased longevity; according to the Office for National Statistics, the number of centenarians in the UK has risen 127-fold over the last century and the trend shows little sign of abating. A second, but related, reason is the growing number of people living in care homes; at the last count it was almost half a million people. At an average cost of £3,290 per month for residential care and £4,160 for nursing care, a prolonged stay in a care home can be very expensive.
When you add to those two factors two more — the rising cost of living and the likelihood that investment returns will be smaller in future than they have been in the past — the scale of the problem is clear.
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