Multi asset income withdrawal in a world of short business cycles

Simultaneous losses in both stocks and bonds in 2022 coupled with a dramatically increased cost of living is focusing minds on the phenomenon known as sequencing risk.

Large withdrawals from a pensions pot when fund values are depressed can significantly reduce the sustainability of income, as recent retirees may discover. Flexible drawdown has only been a feature of the landscape in the UK since universal pensions freedoms in 2015 and this bear market is its first real test.

In this article we demonstrate the importance of managing downside risk during the several recessions and associated bear markets the average person is likely to encounter in the course of their retirement. To do this, we use historical returns to simulate the 20-year experience for cohorts retiring from the mid 1990s onwards. We compare outcomes, assuming fixed annual withdrawals, for a range of investment strategies encompassing cash, global equities, and two multi asset approaches – one a passive strategy focused on natural income; the other an active strategy focused on total return and downside risk management.

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This is a financial promotion and is not investment advice. The views expressed are those of the author at the date of publication unless otherwise indicated, which are subject to change, and is not investment advice.