Don't Sell Into the Storm

The retirement risk your portfolio cannot solve on its own. Solved by the asset most people never think to use.

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Nobody sells the house in the middle of the storm. You board the windows, you wait it out, you repair the damage, and the value comes back.

Yet that is very close to what a retirement withdrawal does during a bear market. The market is falling, you need income, and you sell. No panic. No emotional decision. You simply need money. In doing so you converted a paper loss into a permanent one.

In our first issue we named this problem: sequence of returns risk. This issue is about what you can do about it.

The Math Nobody Puts in the Brochure

Two numbers explain most of it.

First, losses and gains are not symmetric. A portfolio that falls 30% needs a 43% gain just to get back to even. Fall 50%, and you need 100%. Recovery always has more work to do than the decline did.

Second, a withdrawal during a decline removes the shares that would have participated in the recovery. Take $80,000 out of a portfolio that is down 30%, and you have just sold roughly $114,000 of pre-decline value. Do that for three years running, and when the rebound finally arrives, it arrives to a much smaller base.

This is why two retirees with identical average returns over twenty years can end up in completely different places. It was never about the returns. It was about the order they showed up in.

Why This Got Harder, Not Easier

Three things shifted at roughly the same time.

1. Diversification failed exactly when it was needed

For decades, bonds were the seatbelt. When stocks fell, bonds usually rose, and the balanced portfolio absorbed the hit. In 2022 that relationship broke as stocks and bonds fell together. Morningstar’s study of 150 years of market crashes found the 2020s produced the only decline in that entire span where a 60/40 portfolio fell deeper and stayed down longer than an all-stock portfolio. It did not regain its previous high until June 2025.

2. More people are drawing down at once

The Alliance for Lifetime Income estimates that more than 4.1 million Americans turn 65 each year from 2024 through 2027. This is the largest surge of retirement-age Americans in U.S. history. More retirees mean more portfolios being converted into paychecks, and far fewer of those retirees have a pension underneath them. (https://www.limraconsumer.com/wp-content/uploads/2024/01/Whitepaper_Fichtner.pdf)

3. Retirements got longer

A thirty-year retirement means thirty years of market exposure. Historically, that is two or three bearmarkets you will live through as a net seller rather than a net buyer.

None of this means portfolios are broken. It means a portfolio alone was never designed to answer one specific question: where does this month’s income come from when everything is down at the same time?

Why this matters for you: If you are within ten years of retirement on either side, the first decade of withdrawals will do more to determine your outcome than your average return over the following thirty.

What a Buffer Asset Actually Has to Do

A buffer asset is a pool of capital you can draw from during a downturn so that your portfolio is left alone to recover. Simple idea. Strict requirements. To do the job, it must be all three of these at once:

1. Uncorrelated. Its value cannot move with the market you are trying to avoid selling into. Otherwise, you are only choosing which loss to realize.

2. Available on demand. No lock-up, no approval process, no liquidation window. Bear markets do not schedule themselves around your paperwork.

3. Tax-efficient to draw from. If tapping it triggers a taxable event, you have solved a market problem by creating a tax problem.

Cash clears the first two and fails the third slowly. Inflation is a tax you never file for. Home equity lines fail the second, because banks tighten credit precisely when markets fall. Bonds, as 2022 demonstrated, are correlated more often than the brochures suggest. (https://www.lpl.com/research/blog/what-fed-leadershipshift-

could-mean-for-stock-bond-correlation.html)

Where Insurance Enters the Picture

This is the part of the conversation most portfolio reviews never reach.

The cash value inside a properly designed permanent life insurance policy can satisfy all three requirements.

It is not priced by the market. Whole life cash value grows through contractual guarantees plus dividends. Indexed universal life credits interest linked to an index but with a floor, typically 0%, so an index decline does not reduce accumulated value. However, policy charges still apply, and caps and participation rates limit the upside.

It is available without asking permission. A policy loan requires no credit application, no underwriting, and no bank. Money available in days, not weeks.

It is not a taxable event. A loan is not income. You are borrowing against the cash value rather than withdrawing it. In most designs the full cash value keeps earning as though the loan had never been taken.

That last mechanism is the whole point. During a downturn, income comes from the policy. The portfolio stays fully invested and participates in the recovery. When markets recover, you repay the loan out of portfolio gains and reset the buffer for the next cycle.

You have broken the link between "I need money" and "I have to sell something at a bad price."

What This Looks Like in Practice

A buffer strategy is only as good as the rule attached to it. Vague good intentions collapse under stress,so the decision rule gets written down in advance and long before it is needed. In broad strokes:

• Portfolio flat or modestly down. Take income from the portfolio, rebalance normally, and pay down any outstanding policy loan.

• Portfolio down past a pre-set threshold. Suspend portfolio withdrawals. Draw income from policy cash value instead. Leave the portfolio to recover untouched.

• Recovery confirmed. Resume portfolio withdrawals, restore the loan balance, and rebuild the buffer before the next cycle.

The threshold, the size of the buffer, and how many years of income it needs to cover are engineering decisions. They depend on your withdrawal rate, your tax picture, your other income sources, and how the policy itself was funded.

The Honest Limitations

This strategy is not free, and it is not for everyone. You should know the tradeoffs before anyone shows you an illustration.

It requires runway. Cash value takes years to build to a level that can fund meaningful income. This is something you implement in your 40s and 50s to deploy in your 60s and 70s. It is a poor emergency fix at 64.

Loans carry interest. In many designs the spread is favorable or close to neutral, but tax-free is not the same thing as actually free.

Loans reduce the death benefit. Any outstanding balance when you pass away is subtracted from what your beneficiaries ultimately receive.

A mismanaged policy can lapse. Borrow aggressively without monitoring the policy and it can lapse. This could potentially trigger a significant tax bill on gains you never received in cash. This is the single strongest argument for a policy used this way being actively managed rather than filed away in a drawer.

Design decides everything. A policy structured to maximize the death benefit looks nothing like a policy engineered to maximize accessible cash value. Same product category, entirely different outcome. Most policies already in force were never built for this job.

The Bigger Point

Insurance and investing are usually sold as two separate conversations, by two separate people, who never speak to each other. That is an artifact of how the industry distributes products. It is not a planning principle.

Structured together, the insurance side can solve something the investment side genuinely cannot: making sure you are never a forced seller. That is not a product pitch. It is arithmetic.

So, the question worth sitting with is not whether your portfolio is any good. It is what your plan does at the worst possible time.

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Where would your income come from if the market were down 30% next quarter?

If the answer is "I would sell something," that is worth a conversation.

Schedule a complimentary strategy session. No obligation, no jargon.

Sequence Asset Management | Fiduciary Wealth Management | sequenceam.com

Everflow Insurance Advisory | Independent Life Insurance & Tax-Free Wealth Strategies |everflowinsurance.com

shep@sequenceam.com | (202) 409-4550 | 6073 Louisville Street, New Orleans, LA 70124

This newsletter is for informational and educational purposes only and does not constitute investment, insurance, tax, or legal advice. It is not a recommendation to buy or sell any product or security. Life insurance products, riders, guarantees, loan provisions, and crediting methods vary by carrier and policy; guarantees are subject to the claims-paying ability of the issuing insurer. Policy loans and withdrawals reduce cash value and death benefit, may cause a policy to lapse, and may have tax consequences. Hypothetical figures are illustrative only and are not intended to project the performance of any specific product or portfolio. Past performance does not indicate future results. All investing involves risk, including the possible loss of principal.

Everflow Insurance Advisory is an independent life insurance advisory firm. Sequence Asset Management provides advisory services through Rossby Financial LLC, a Registered Investment Adviser with the U.S. Securities and Exchange Commission. Rossby Financial LLC and its affiliates do not provide tax or legal advice. Consult your own tax, legal, and licensed insurance professionals regarding your specific situation.