Fragile Decade

Client Scenario


The “fragile decade” is that period that spans the last five working years and first five years in retirement. It is particularly fragile because investors in this phase of their lives are vulnerable to sequence of returns risk.

James was squarely in his fragile decade. He was proud the day his 401(k) topped $500,000. It motivated him to save more diligently. When he finally left his corporate engineering role after more than two decades, he rolled that 401(k) into a traditional IRA.

Now, at age 61, he is only five years away from retirement. And because he patiently let his IRA accumulate, the combined value of that asset plus his 401(k) have officially made him a ‘401(k) millionaire.’

As he and his advisor Theo begin to prepare James for retirement, Theo has identified three primary goals over the course of the next five and ten years. During this ‘fragile decade’ period, he explains, retirement savers are vulnerable to sequence of returns risk.

As such, Theo aims to 1.) protect against sequence of returns risk over this ‘fragile decade,’ 2.) plan for maximizing James’ social security benefit, and 3.) create a guaranteed lifetime income stream for James since he is among the millions of Americans retiring today without a traditional defined benefit plan or other pension. Having a guaranteed stream of income in retirement will help James meet rising healthcare costs, and mitigate longevity risk as advances in medical science continue to prolong life.

They agree that James should continue working until age 66 to maximize social security. Theo then recommends that he insure against sequence of returns risk by investing in a low-cost, no-load variable annuity with a guaranteed lifetime withdrawal benefit.

Since distributions on the IRA and annuity will be taxed the same, James agrees to apportion $500,000 of his IRA in a next-gen variable annuity with an income guarantee of 5.5%. This particular solution provides a benefit base that increases 5% for every year he doesn’t take income, so he can also potentially bolster that retirement paycheck by 25% in five years.

Theo explains that this withdrawal base could grow even if his account loses value. And it’s guaranteed for life. The cost to James would be about 1.25% annually for the guarantee, and roughly .50% for the annuity itself. He’s willing to pay to insure his future income, and knows that, should markets perform well over the next ten years, he may no longer need the insurance. He may then simply cancel the income guarantee, and reduce the fee drag on his investment.

James is happy to know that the variable annuity with guaranteed lifetime withdrawal benefit allows him to insure his future income without requiring him to lock his money away. It also allows him to allocate up to 80% in equities and pay Theo’s .50 bps management fee directly from the annuity without affecting the benefit base.

Operationally, Theo likes the annuity because data from the insurance company feeds directly into his portfolio management software—Making this asset visible to him and on James’ client statements.


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