7 minute read
Key Takeaways
- A record number of Baby Boomers are hitting age 65 — creating the largest retirement wave in U.S. history.
- Market volatility and sequence-of-returns risk pose significant threats to retirees’ portfolios.
- Together, these forces form a “perfect storm” that makes financial advisors more essential than in previous generations.
- Advisors who understand demographic shifts and sequence risk can guide retirees through one of the most challenging financial eras on record.
Do you know what the Fujiwhara effect is?
In short, it describes the rare moment when two tropical cyclones come close enough to merge into a single, massive storm - creating an even more destructive feedback loop.
Most of the time, a stronger storm swallows the weaker one.
But sometimes, two storms of similar strength collide and form something much larger - and much more dangerous.
Now you may be thinking, “What does this have to do with me as a financial advisor?”
Good question.
I believe two “storms” are forming right now in the financial world - and together, they have the potential to create a perfect storm for retirees.
Here they are:
- A once-in-a-century Baby Boomer retirement wave.
- Rising market volatility increasing potential sequence-of-returns risk.
Let’s break them down.
The First Storm: The Baby Boomer Retirement Wave and its Impact on Planning
The Baby Boom generation arrived during the largest fertility surge in U.S. history — and that surge is now turning into a massive retirement event.
According to Statista, U.S. fertility rates only experienced one sustained uptick in over 220 years of data: the Baby Boom period from the 1940s to the 1960s.¹
This created decades of economic growth. But now that surge is becoming a burden.
Retirees spend less, depend more on Social Security, and require younger workers to support them — yet fertility rates are now at record lows, and growth is slowing.
Figure 1: Statista, U.S. Fertility Rates (2020)
The data is staggering:
- The U.S. population aged 65+ grew five times faster than the total population from 1920 to 2020.²
- Roughly 10,000 Baby Boomers hit retirement age every day until 2030.³
- In 2020, 1 in 6 Americans was 65+. By 2030, it will be 1 in 5.
- The number of retirees jumped by 15.5 million from 2010–2020 — the largest 10-year increase ever.
This is a once-in-a-century demographic shift.
Advisors will be at the center of it.
The Second Storm: Rising Market Volatility and Growing Sequence-of-Returns Risk
At the same time that retirements surge, markets are becoming more volatile — and volatility is the fuel that makes sequence-of-returns risk so dangerous.
Sequence risk means:
- If retirees experience poor returns early in retirement…
- While taking withdrawals…
- Their portfolio may run out of money even if average returns are strong.
A few examples:
- A 50% decline requires a 100% gain just to break even.
- Retiring at the top of the dot-com bubble or housing bubble dramatically changed outcomes for those withdrawing funds.
- One bear market early in retirement can permanently damage long-term financial stability.
Retirees cannot afford big losses early on — and this wave of 65+ Americans is more exposed to sequence risk than any generation before them.
The Perfect Storm for Retirees — And Why Advisors Matter More Than Ever
Thus, the convergence of the Baby Boomer retirement wave and the escalating threat of market volatility resembles a brewing Fujiwhara effect in the financial world.
Like the merging storms in meteorology, these two forces have the potential to combine into a formidable perfect storm for retirees.
But this also creates an opportunity for steadfast financial advisors.
Think of them as the captains of the ship – navigating safely through the storms and potentially safeguarding retirees' assets.
And - us at Dunham - like the lighthouse, guiding them.
Here’s to happy sailing. . .
Click here or call us at (858) 964 – 0500 to see how our DunhamDC
program may potentially mitigate sequence risk and enhance recovery time for
clients.
FAQ
Why is 2025 such a critical time for financial advisors?
Because the largest wave of Baby Boomers is retiring as market volatility and sequence risk rise, increasing the need for professional guidance.
What is sequence-of-returns risk?
It’s the danger that negative market returns early in retirement can permanently damage withdrawal-based portfolios.
Why does the Baby Boomer retirement wave matter?
Because 10,000+ Americans reach age 65 every day, increasing pressure on Social Security, savings, and advisor-led planning.
Sources:
1. https://www.statista.com/statistics/1033027/fertility-rate-us-1800-2020/
2. https://www.census.gov/library/stories/2023/05/2020-census-united-states-older-population-grew.html
3. https://smartasset.com/retirement/baby-boomers-retiring
4. https://www.stlouisfed.org/on-the-economy/2022/january/great-retirement-who-are-retirees
5. https://www.dunham.com/FA/Blog/Posts/sequence-risk-for-retirees
DunhamDC Disclosure:
This communication is general in nature and provided for educational and informational purposes only. It should not be considered or relied upon as legal, tax or investment advice or an investment recommendation. Any investment products or services named herein are for illustrative purposes only, and should not be considered an offer to buy or sell, or an investment recommendation for, any specific security, strategy or investment product or service. Always consult a qualified professional or your own independent financial professional for personalized advice or investment recommendations tailored to your specific goals, individual situation, and risk tolerance.
Past performance may not be indicative of future results. No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment. There may be economic times where all investments are unfavorable and depreciate in value.
DunhamDC (“DunhamDC”) is a proprietary algorithm of Dunham & Associates Investment Counsel, Inc. (“Dunham”) that seeks to mitigate sequence risk, which poses a threat to an investor's returns due to the timing of withdrawals. The algorithm employs what Dunham considers to be a pragmatic strategy, generally making incremental increases to the equity allocation when global stock market prices decrease and decreasing it when global stock prices increase. This approach is objective, unemotional, and systematic. Rebalancing is initiated based on the investment criteria set forth in the investors application and is further influenced by the DunhamDC algorithm.
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