Revisiting Retirement Readiness

Managing The ‘Sequence of Returns Risk’

How longevity can disrupt the assumptions of a long-range income plan

by Dylan Huang

Mr. Huang is Senior Vice President and Head of Retail Annuities for New York Life. Visit

As Americans grapple with the consequences of COVID-19, protecting their own health and that of their loved ones is rightfully at the top of the priority list. But retirement is not far behind for the many Boomers turning 65 every day. New data from New York Life and Morning Consult found that 64 percent of Americans say physical health is increasing in priority, 46 percent say finances and 37 percent say their retirement is increasing in priority.

As advisors, your working environment has also changed significantly and you are adapting to new technology, addressing new and pressing concerns from clients, and helping them navigate the current market volatility. This situation means it’s even more critical to support clients who are concerned about keeping their retirement plans on track and to help them understand one of the largest risks to their portfolio: sequence of returns risk.

For many preparing for retirement and watching the decade-long bull market continue to run, sequence of returns risk likely hasn’t been at the forefront of their decumulation strategy. But, COVID-19 demonstrated that things can change quickly, so it’s important for your clients to understand that the timing of returns matters in retirement and will have a large impact on portfolio longevity. Fortunately, there are ways you can help clients to prepare and adapt plans to help mitigate that risk.

What is Sequence of Returns Risk?

Sequence of returns risk is the risk of losses to a retiree’s nest egg early in retirement which could derail long-term retirement plans. In this scenario, withdrawing from a portfolio soon after market losses results in future gains accruing off a smaller base and means that a portfolio may not adequately fund the length of retirement. While the market has recovered since the earliest days of the pandemic, COVID-19 has demonstrated that unexpected events can have significant consequences.

Here’s an example: Taking the actual return sequence of the S&P 500 from 2000-2019 and assuming a $100,000 starting portfolio with an inflation-adjusted 4% withdrawal rate, the ending portfolio balance after 20 years would be roughly $35,000. However, if you simply reverse the order of returns (i.e., use the 2019-2000 sequence) the ending portfolio balance would be $195K (5x the return). This is because of the order of the market losses in 2000-2002 and the market gains in 2016-2019.

How Annuities Can Help

Annuities can help hedge against Sequence of Returns Risk in a few ways:

  • Investors can lock-in their income with guaranteed income annuities2 which do not deplete in value over time or fluctuate with volatility in the market (i.e., they are uncorrelated with capital markets). Note, however, that with income annuities there is little or no liquidity.
  • Income annuities may provide more income than other fixed-income assets for some3, especially during low-rate environments. More guaranteed income reduces the client’s need to withdraw from investments to cover expenses, which is particularly valuable in down markets.
  • Income annuities also allow investors to hold riskier assets without meaningfully increasing the risk profile of their portfolio, which increases portfolio longevity. Research shows that retirement portfolios heavily weighted to fixed income assets face a greater risk of depleting prematurely because they lack the returns other assets generate and the inherent longevity benefits of annuities.

What Should Clients Know About Buying Annuities in this Environment?

For many preparing for retirement and watching the decade-long bull market continue to run, sequence of returns risk likely hasn’t been at the forefront of their decumulation strategy. But, COVID-19 demonstrated that things can change quickly...

The value proposition of an income annuity is tied to the strength of the insurance company that issues the contract, so it’s important for financial professionals and their clients to understand the insurer’s financial strength, investment philosophy and product options. Amid COVID-19, guarantees from financially sound insurers are now more valuable than ever.


While sequence of returns risk is a challenge for retirees, market volatility induced by COVID-19 has drawn newfound attention to this type of risk. Financial professionals have a critical role to play in ensuring clients’ retirement plans can stay on track and educating them on how products with built-in stability are the key to helping them ride out market shocks.



These findings are from a poll conducted by Morning Consult on behalf of New York Life from March 23-26, 2020, among a national sample of 2,200 adults. The interviews were conducted online and the data were weighted to approximate a target sample of adults based on age, race/ethnicity, gender, educational attainment and region. Results from the full survey have a margin of error of plus or minus 2 percentage points.
2 Guarantees are based upon the claims paying ability of the issuing insurance company.
3In a low rate environment like today, mortality credits represent a larger portion of annuity payouts which makes annuities more valuable than fixed income alternatives. Bonds, CDs, and other fixed income investments do not have mortality credits so their value in generating retirement income drops faster as rates fall. Annuity incomes include a return of premium and based on insurance factors.
Past performance is no guarantee of future results. The example is for illustrative purposes only and does not represent any actual performance of a particular product/strategy. Individual results will vary. The S&P 500 index is a stock market index that measures the stock performance of 500 large companies listed on stock exchanges in the United States. Investor cannot invest in an index.