New Delhi, June 9 -- Retirees are often drawn to a tempting idea: since equities typically deliver higher returns over the long run, a retirement portfolio with more equities will produce better outcomes. Wouldn't it be nice to escape the meagre 3% withdrawal rate by investing more heavily in equities? Unfortunately, it's not so straightforward.

Beyond a point, increasing equity allocation will reduce, not raise, the withdrawal rate. This is due to a crucial but underappreciated concept: sequence of return risk. In portfolios that experience regular withdrawals, not just the returns but the order in which they are earned matter, which can have dramatic consequences.

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