🔁The Hidden Retirement Risk Few People Talk About: Sequence of Returns
Most people plan for retirement based on average annual returns. But here's the truth: it's not just how much your investments return, but when they return it that can make or break your retirement.
This concept is called Sequence of Return Risk—and it can be one of the most underappreciated dangers facing retirees.
🧠What Is Sequence of Return Risk?
It’s the risk of experiencing poor investment returns early in retirement—right when you're starting to withdraw funds.
Even if your portfolio averages 6% over 30 years, early losses combined with regular withdrawals can cause your portfolio to drain far faster than expected.
📉Why It’s So Dangerous
Two retirees. Same portfolio. Same average return. Different outcomes.
- Retiree A gets good returns early → portfolio grows
- Retiree B gets bad returns early → withdrawals lock in losses
Retiree B may run out of money years sooner, despite identical averages.
💡How to Defend Yourself
✅Cash buffer: Keep 1–3 years of living expenses in cash or short-term assets
✅Flexible withdrawals: Adjust spending based on market performance
✅Annuities: Add guaranteed income streams
✅Delay Social Security: More guaranteed income later = less early pressure
✅Diversify: Reduce volatility through smart asset allocation
📌Key Takeaway
In retirement, timing can be everything.
Smart planning can mitigate risk to your portfolio from market downturns—and give you confidence for decades to come.
🔍 Curious how sequence of return risk could impact your retirement? I’d be happy to connect or walk through a few scenarios.
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The guarantee of the annuity is backed by the claims paying ability of the issuing insurance company. A diversified portfolio does not assure a profit or protect against loss in a declining market. All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful. This information may not be relied on for the purpose of determining your social security benefits or eligibility, or avoiding any federal tax penalties. You are encouraged to seek advice from your own tax or legal professional.