Investors withdrawing money from their portfolios are often concerned about the “probability of ruin,” where ruin is defined as the depletion of the portfolio prior to either a fixed date, or prior to a random date such as the end of retirement (i.e., the end of one’s lifetime). Read this article to gain insight on how to manage those needs with the reality of today’s volatile markets.

Why have an investment reserve? The underlying mathematics of compound return indicate that the more volatile the investment, the lower a portfolio’s long-term growth rate, all else equal. An investment that losses 20% in period one needs 25% in period two in order to get back to even. Periods of negative returns not only decrease portfolio value but, if the portfolio is also funding retirement distributions, the distributions take dollars out of the portfolio at the worst possible time. In a nutshell, distributions multiply the bad consequences of negative returns and cap the benefits of positive returns. The Wall Street term for taking money out of portfolios during periods of economic distress is “feeding the bear.”

Managing Retirement Portfolio Withdrawals in Turbulent Times: Precautionary Savings, Investment Reserves and Mid-Term Adjustments