Two retirees can have the exact same average return over 20 years — and one runs out of money while the other doesn't. The difference isn't luck. It's the order the returns happened in.
Sequence of returns risk is the danger that a market downturn combined with ongoing withdrawals, early in retirement, permanently damages a portfolio's ability to recover — even if the average return over the full retirement period is positive.
It only matters once withdrawals begin. During your working years, a down market barely registers over a full career — you're buying more shares at lower prices, which actually helps you. In retirement, the math flips completely.
When you withdraw money from a portfolio during a down year, you have to sell more shares to generate the same dollar amount. Those shares are gone — they can't participate in the recovery that follows. A downturn late in retirement, or one that happens before withdrawals start, doesn't do this same compounding damage.
Same average return. Different outcome.
Two portfolios both average roughly the same annual return over 20 years of retirement withdrawals.
Illustrative comparison. Actual outcomes depend on withdrawal rate, asset allocation, and actual market timing, which cannot be predicted or controlled.
You can't control which sequence you get — nobody can predict market timing. But you can reduce how much it matters:
A cash reserve — covering 1–2 years of expenses in liquid, low-risk accounts means you're not forced to sell investments during a downturn just to eat.
Flexible withdrawal strategy — reducing distributions in down years, drawing more in strong years, instead of a fixed withdrawal regardless of market conditions.
Principal-protected income — allocating a portion of retirement income to a Fixed Indexed Annuity or similar structure means a market downturn early in retirement doesn't force a withdrawal at a loss on that portion, because the floor is already zero.
The danger that the order of investment returns, not just their average, determines whether a retirement portfolio survives — a downturn combined with withdrawals early in retirement can cause permanent damage.
Withdrawals during a down market force more shares to be sold for the same dollar amount, permanently reducing what's left to participate in a later recovery.
A cash reserve, a flexible withdrawal strategy, and allocating part of retirement income to principal-protected products like Fixed Indexed Annuities.
Far less — regular contributions during a downturn buy more shares at lower prices, which can help a portfolio. The risk is specific to the withdrawal phase.
This risk shows up throughout retirement planning — see how it connects to other strategies:
A brief conversation can show you exactly how much of your income is exposed to sequence risk — and what to do about it.
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