One of the greatest challenges retirees face is not simply market volatility. It is the timing of that volatility.
When markets decline early in retirement, clients who continue withdrawing from their investment portfolios may experience what is known as sequence of returns risk. Even if markets eventually recover, early losses combined with ongoing withdrawals can significantly reduce the longevity of a retirement portfolio.
For financial advisors, managing sequence of returns risk has become an increasingly important part of retirement planning.
At Abacus Life, we believe one often overlooked strategy is evaluating life insurance policies that may no longer serve their original purpose. Through a life settlement, clients may be able to access liquidity from an existing asset, helping reduce the need to sell investments during unfavorable market conditions.
Understanding Sequence of Returns Risk
Sequence of returns risk refers to the impact that the timing of investment returns can have on a retirement portfolio.
Two investors may earn the exact same average annual return over twenty years.
However, if one experiences significant market losses during the first few years of retirement while taking regular withdrawals, they may end up with substantially less money over time.
Why?
Because withdrawing assets during a market decline means:
- Selling investments at lower values
- Reducing the amount of capital available to participate in future recoveries
- Increasing the likelihood that retirement assets are depleted sooner
For retirees relying on portfolio income, this can become a major planning concern.
Liquidity Becomes Critical During Market Downturns
Market volatility is inevitable.
The challenge is ensuring clients have flexibility when markets decline.
If retirees have no other source of liquidity, they may be forced to:
- Sell investments during a downturn
- Withdraw more from retirement accounts than planned
- Disrupt long-term investment strategies
These decisions are often driven by immediate cash needs rather than sound financial planning.
Creating additional sources of liquidity can help clients avoid making these difficult choices.
Looking Beyond Traditional Sources of Cash
When clients need additional income, advisors often look to:
- Cash reserves
- Retirement accounts
- Taxable investment portfolios
- Fixed income assets
While each of these may play an important role, there is another asset that is frequently overlooked.
Life insurance.
For many retirees, policies purchased decades ago may no longer align with their financial goals.
Instead of continuing to pay premiums or allowing a policy to lapse, eligible clients may be able to convert that policy into meaningful liquidity through a life settlement.
How Life Settlements Can Support Retirement Planning
A life settlement allows a policyholder to sell an existing life insurance policy for a cash payment that is greater than the surrender value.
For retirees, those proceeds can provide an alternative source of funds during periods of market uncertainty.
Rather than selling investments after a market decline, clients may choose to use proceeds from a life settlement to:
- Cover living expenses
- Fund healthcare costs
- Meet unexpected financial needs
- Bridge temporary income gaps
This additional flexibility can allow investment portfolios more time to recover before withdrawals resume.
A Practical Example
Consider a retiree whose investment portfolio has declined during a period of market volatility.
At the same time, they own a life insurance policy that:
- Is no longer needed for estate planning
- Requires ongoing premium payments
- Has not been reviewed in several years
Without additional liquidity, the retiree may need to sell investments at depressed values to meet income needs.
Instead, the advisor evaluates the policy for a life settlement.
The client receives a cash payment that provides liquidity for the next several years while eliminating future premium obligations.
As a result, the client is able to reduce withdrawals from their investment portfolio during a market downturn, giving those assets additional time to recover.
While every situation is unique, this illustrates how a life settlement can become another planning tool within a broader retirement strategy.
A More Flexible Retirement Plan
Financial flexibility has become one of the defining characteristics of successful retirement planning.
Clients who have multiple sources of liquidity are often better positioned to:
- Navigate market volatility
- Respond to unexpected expenses
- Preserve long-term investment strategies
- Reduce financial stress
Life settlements are not intended to replace traditional retirement income strategies.
Instead, they can complement them by providing another source of capital when it may be needed most.
Helping Clients Make Better Decisions
One of the most valuable roles an advisor plays is helping clients avoid emotional financial decisions.
During periods of market uncertainty, retirees may feel pressure to:
- Sell investments
- Change long-term strategies
- React to short-term market movements
Having access to additional liquidity can reduce that pressure.
When clients know they have other options, they are often able to remain focused on their long-term financial plan.
Why Policy Reviews Matter
Not every life insurance policy will qualify for a life settlement.
However, many advisors never evaluate the possibility.
By making policy reviews a routine part of retirement planning, advisors can identify opportunities that may:
- Improve liquidity
- Reduce premium burdens
- Support retirement income planning
- Strengthen overall financial flexibility
Sometimes the most valuable planning opportunities come from assets clients already own.
A Smarter Approach to Retirement Planning
Managing sequence of returns risk requires more than thoughtful investment management.
It requires evaluating every available resource that can help clients navigate market uncertainty.
Life settlements offer advisors another way to help clients preserve investment portfolios while creating additional financial flexibility.
In today’s market environment, that conversation can make a meaningful difference in long-term retirement outcomes.
Discover What Your Clients’ Policies Are Really Worth
If your clients own life insurance policies that may no longer fit their retirement goals, there may be an opportunity to strengthen their financial plan.
With Abacus Life’s free policy valuation calculator, you can quickly assess whether a policy may qualify for a life settlement and how it could support a more flexible retirement strategy.
Start evaluating. Start identifying opportunities. Start delivering more value.
