Retirement Income Planning
Sequence of Returns Risk
Two retirees with the same average return can end up with wildly different outcomes — depending on when those returns happen. That's sequence of returns risk.
What Is Sequence Risk?
Sequence of returns risk is the danger that poor market returns early in retirement — combined with withdrawals — can deplete a portfolio far faster than the same returns occurring later.
Why It Matters Most Near Retirement
When you're still working, market drops can recover. When you're withdrawing, you're selling assets at low prices to fund living expenses — locking in losses you can't recover from.
How to Reduce It
Strategies include holding 1–3 years of cash reserves, using a bond ladder, building a guaranteed income floor (Social Security, annuities), and reducing equity exposure as retirement approaches.
The Emotional Dimension
Sequence risk is not just mathematical — watching savings shrink in early retirement can drive panic-selling and decisions that hurt long-term outcomes.
The Bottom Line
Protecting against sequence risk in the years just before and after retirement is one of the most important moves a retiree can make.