You will be afraid to spend!
...But not as much with a “buffer” asset.


By Tom Wall


Suffering large market losses early in retirement can be catastrophic. A retiree without other sources of income would need to sell assets at depressed values, locking in losses. In such a case, the portfolio effectively suffers an even deeper loss, which it will struggle to recover from since it needs an even bigger subsequent gain to compensate. This is commonly referred to as “sequence of returns risk,” where automatic selling works against the retiree by selling more shares when prices are low. We want to be doing the opposite and selling high! And the only way to bounce back is to stay invested in risky assets - something few in that position would remain comfortable with.  

A strategy is to have a buffer asset - somewhere else to draw income from in a down market like we’re experiencing in 2022. My research below illustrates how safe withdrawal rates improve for every year a retiree can pull income from another reliable place (cash, home equity, life insurance, etc.). In summary, on average, an investor can take about a 10% higher safe withdrawal rate from their investment portfolio for every year they can take “off” following a market downturn. This is an incredible and disproportionate lift. For example, one could have reallocated roughly 5% of their portfolio to get 10% more income from the remaining 95%.

Whole life can’t lose value and has no limitations on when you access it. It therefore provides an outstanding alternate source of income, allows you to stay more fully invested elsewhere, and is set up for its best relative performance environment in over 80 years so you’re not missing out on anything.