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Many people scrimp and save for decades in hopes of enjoying a relaxing and rewarding retirement. But one thing that's impossible to plan for when you are 25 or 30 years out from retirement is this: What will the economy be like when you reach 65, 67, 70 or whatever target retirement age you set for yourself?
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If you luck into an economic upswing, good for you. But what happens if you finally reach that magic retirement moment and the market is tanking, inflation is out of control and stagflation has settled in?
In that scenario, retirees face at least two risks that have the potential to tarnish their long-awaited golden years:
Sequence-of-returns risk, which affects long-term holdings.Interest rate risk in your bond funds for fixed income.
The good news is that several strategies exist to help retirees maneuver through these risks and dodge the loss exposure that can rear up at each unexpected turn of the retirement journey.
Retirement Risk No. 1: Sequence of Returns
Perhaps you have run across references to sequence of returns risk before. If not, let me give you a quick primer about how it works - and how it can quickly erode your retirement savings if you don't take steps to counteract it.
Let's say you decide to retire at 67. You have a hefty amount of savings to see you through the next few decades - or so you (or your accumulation-oriented financial adviser) believe. But times are tough with the overall economy at the time you retire. If you are confident that won't affect you (you're retired, after all, and not seeking employment), you are wrong.
Here's why
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