Sequence of Return Risk Animation

A home equity conversion mortgage (HECM) line of credit provides a tool that can be used to mitigate the impacts of sequence of returns risk (the risk of incurring portfolio losses early in retirement).

Since 2012, a series of research articles has highlighted how the strategic use of a reverse mortgage can either preserve greater overall legacy wealth for a given spending goal or otherwise sustain a higher spending amount for longer in retirement. Maintaining higher fixed costs in retirement increases exposure to sequence risk by requiring a higher withdrawal rate from the remaining assets. (A period of down markets reduces the value of the portfolio, requiring a larger percentage of the remaining assets be withdrawn to fund the same absolute level of portfolio income.) Drawing from a reverse mortgage has the potential to mitigate this aspect of sequence risk by reducing the need for portfolio withdrawals either generally or just at inopportune times.

This video demonstrates that the sequence of returns matters during your retirement years.