Sequence of Returns Risk: The Quiet Killer of Retirement Plans
Two retirees, same average return, same withdrawals. One ends up wealthy. The other runs out of money. The difference is the order returns showed up in.
Priya Anand
Contributor, Retirement Straight Talk
If you remember one thing from this article: in retirement, the order of your returns matters more than the average.
The brutal math
Two retirees both average 7% annual returns over 30 years. Same starting balance. Same $50,000/year withdrawals. The only difference is that one had her bad years up front, and the other had his bad years late.
- Bad years late: ends retirement with $1.6M.
- Bad years early: runs out of money in year 22.
Same average. Wildly different lives.
Why early losses hurt so much
When you're withdrawing during a drawdown, you're selling shares at the worst possible price. Those shares are then permanently gone — they can't participate in the eventual recovery.
Three defenses that show up in the research
1. A real cash + bond cushion
Keep 1 to 3 years of spending in cash and short-term bonds. In a bad market you spend from the cushion, not the stocks.
2. Flexible withdrawals (guardrails)
Use a plan that quietly trims withdrawals when markets are down, instead of mechanically inflation-adjusting them upward.
3. Glide-path equity
Some research (Wade Pfau, Michael Kitces) suggests that reducing equity at retirement and then increasing it over time can lower sequence risk during the most vulnerable years.
What this looks like in your plan
- Going into retirement with 90% in stocks "to keep up with inflation" carries real risk.
- Sitting in 100% bonds isn't safer — it's just eaten by inflation slowly instead of by a bear market quickly.
- The first 5 years of retirement are the most fragile. Plan for them specifically.
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