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Do you remember our previous slide on withdrawal rate risk and also longevity, certainly two risks that can affect us during our retirement income planning years. Now we have to talk about that period, just like we talked about in that 2010 target date fund, because in our hypothetical example, our retiree was in 2007, yet he was going to retire in three years and we had a correction of 34.8% in his portfolio. Let’s talk about that retirement red zone, the time right before and after retirement. So if we look at the retirement red zone and ask ourselves this question, are we approaching it? Well, certainly during the accumulation years, those 30 to 45 years prior to retirement, we’re focused on asset allocation. We’ve got most of our assets in the stock market. We’re trying to grow those assets and we’re trying to get the best returns we can.
We have de-risked our portfolio very little as we move into our pre-retirement years though. We’re considering the fact that we may have to start living off of this money, so we’re, de-risking it. We’re becoming more risk averse. We enter into a preservation stage, and that preservation stage begins as early as 10 years prior to retirement. But the red zone happens about five years prior to retirement. So if you’re 60 years old and you’re looking at this particular slide right now, and you’re planning on retiring at 65, you’re right in the sweet spot, you’re right in the area where The Coastal Financial Planning Group could help you the most in doing your retirement income planning. And secondly, if you’re in that retirement red zone that’s after you’ve already decided to retire, which is for an unknown amount of years, remember, we’re not sure how long we’re going to live. So we have to look at how we’re going to preserve and distribute this wealth to us over that 20, 30, 40 year period or lifespan of retirement. The critical time zone though is the five years before retirement, and the five years after we decide it’s time to retire. And how your investments provide you with returns during those 10 years is critical when we apply the third risk to your retirement income planning that needs to be factored in as a major issue. And that’s called sequence risk. We’ll talk about that in a future slide.