Income drawdown is a widely used retirement strategy in which individuals withdraw income from accumulated savings. However, retirees who rely on this method face two key challenges: market volatility and sequence risk—the risk of poor returns in the early years of retirement. In this paper, we explore how dynamic hedging can help mitigate these risks by adjusting exposure to market movements in real time. We examine the nature and impact of both volatility and sequence risk, and demonstrate how dynamic hedging may provide greater resilience for retirement portfolios.

This paper features:

• Overview of market volatility and its impact on the cost of providing drawdown income.
• Explanation of sequence risk and its effect on retirement funds during prolonged periods of depressed prices.
• Discussion on how dynamic hedging strategies adjust portfolio risk at a given point in time, helping add resilience to a portfolio.