Jackson Report: Sequence of Returns Risk is Worse Than You Think

Sequence of returns risk (“SOR”), the risk that markets may go south as retirees begin taking income, is a well-publicized phenomenon. Though, because of its recency, Moshe Milevsky laments that it lacks a true measure or definition. In this report for Jackson he suggests a standardized measure—a sort of Richter scale for SOR that attempts to quantify the potential impact on client portfolios.

Mr. Milevsky, a professor of finance at York University in Toronto, employs Monte Carlo Simulations to arrive at his conclusion: sequence of returns risk is actually worse than you think. SOR can be especially impactful for folks in the “fragile decade“—that is the last five working years and first five years of retirement.