To illustrate the importance of sequence of returns, take for example this scenario.
We have 2 brothers who each retire with a $500,000 RRSP.
One is retiring in 1990.
The other 10 years later in 2000.
They plan to take $30k a year from the RRSPs for living expenses.
By Jason A. DeJean, CFO, PFP, EPC, CPCA
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Here is where things get tricky. When it comes time to retire or draw funds from the investment the return at time of withdrawal is most important. In this example, both portfolios start at $500,000. $20,000 is being withdrawn annually. When we start with negative returns early in the cycle is approximately $72,000 less. Look specifically at the value of each portfolio in 2008. That’s a massive difference.
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