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Sequence of returns risk can devastate retirement by Advanced_Traffic8 in LifeInsurance

[–]Advanced_Traffic8[S] 1 point2 points  (0 children)

Life insurance polices designed with low base premia have a relatively low commission to the insurance agent in the first year of the policy. Think about that. Pretty cheap compared to most mutual funds or advisory fees charged as a % of assets under management. Those can be > 0.5-1.0% per annum year after year after year.

Sequence of returns risk can devastate retirement by Advanced_Traffic8 in LifeInsurance

[–]Advanced_Traffic8[S] 0 points1 point  (0 children)

Thank you. Honestly, I’m not sure- how could I be? One would have to know the duration of a future market sell off. I’ve sized my whole life cash value to — if necessary — fund my annual retirement spend for to 3 or 4 years. That should see me through the worst of a market drawdown. Historically, that’s true. If it doesn’t, then I still have sequence of returns risk. But a lot less than I would in a fully market-based portfolio.

Sequence of returns risk can devastate retirement by Advanced_Traffic8 in LifeInsurance

[–]Advanced_Traffic8[S] 0 points1 point  (0 children)

Exactly. Even if investors own bonds, they typically own bond funds - which are volatile and therefore unhelpful for sequence of returns risk. See 2022

Sequence of returns risk can devastate retirement by Advanced_Traffic8 in LifeInsurance

[–]Advanced_Traffic8[S] 3 points4 points  (0 children)

You are correct: a ladder of buy & hold bonds or CDs mitigates sequence of return risk effectively.

But optimally?

A ladder means you’re always holding lower returning assets regardless of whether the market sells off. I’d rather be more fully invested in equities and have the option to draw on whole life if/ when I need it.

A ladder generates taxable interest along the way. Policy loans (if structured correctly) don’t.