What is a Mutual Fund (2024)

Changes in the market are common. While no one can predict when volatility may strike, markets have historically bounced back over the long-term. For retirees, however, periods of high volatility can affect their savings if the sequence of returns they earn is unfavourable.

As you review your own approach to retirement, it’s important to understand the two stages—accumulation and decumulation—and how to improve your chances of maintaining your money.

Accumulation is the period where an investor saves and grows their nest egg. As they approach or reach retirement, an investor starts living off that nest egg during the decumulation phase. So while the accumulation phase is all about savings and returns, the decumulation phase is more about generating sustainable income. In short, it's a pivot to generating cash flow to avoid running out of money. And with the prospect of a long retirement, you might still need some growth in your portfolio.

An investor who does not have an immediate need for income can afford to wait out volatility, but a retiree who is in a decumulation phase – for example, a person who needs to make regular withdrawals – may experience a significant impact on their portfolios.

Here's an example. If a retiree is withdrawing 5 per cent of their savings per year, then their asset base will likely decline over time (depending on overall returns). So returns earned at the start of an investor's decumulation phase can affect a greater number of assets, setting the stage for the portfolio’s future income flow. On the other hand, the effects of investment returns in later stages of decumulation are not as pronounced, as they impact a smaller amount of assets. In short, avoiding negative returns early in retirement can be critical.

For more information, and to help ensure your investment plan will meet your retirement needs, have a conversation with your advisor.