GMO examines sequence risk during retirement saving and how return timing can shape outcomes despite identical long term returns. Using Joe and Jane, it shows a 50% wealth gap from timing alone. It also challenges static target date approaches and discusses valuation aware allocation ideas.
Who Ate Joe’s Retirement Money?
GMO
Peter Chiappinelli, Ram Thirukkonda
Research
11 Pages
Key Takeaways
Sequence Risk Matters: Two investors earning the same 5% real return finished with $590,000 and $880,000 respectively, a nearly $290,000 difference driven by return order.
Outcomes Vary Widely: Among roughly 1,400 simulations with realized returns near 5%, terminal wealth ranged from about $314,000 to more than $1,000,000.
Final Decade Dominates: In 20,000 simulations, investors with stronger returns during their final 10 years consistently ended with substantially higher retirement wealth.
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