What Is Sequence of Return Risk?

When you’re in your 40s or 50s, market volatility feels frustrating — but not devastating.

That’s because you’re still contributing to your accounts.

You have time to recover from downturns.

Dips in the market are just noise.

But once you approach retirement, the game changes.

You’re no longer putting money in.

You’re pulling money out.

And if the market drops early in your retirement years, you could be forced to sell investments at a loss just to generate income.

That’s where the real damage happens: those shares are gone forever, so even if the market rebounds, your portfolio may never fully recover.

This compounding effect is what we call sequence-of-return risk.

Why the “Critical Window” Matters

Research shows that the 10-year period spanning the 5 years before retirement and the first 5 years after retirement is the most important in determining long-term retirement success.

A major market downturn in this window can:

• Force you to delay retirement (because your nest egg isn’t large enough anymore)
• Require a reduced lifestyle (cutting travel, hobbies, or even essentials to make your money last)
• Accelerate portfolio depletion (increasing your risk of running out of money decades later)

Even average long-term returns don’t protect you if they come in the “wrong order.”

Two retirees with identical savings and identical 30-year market averages can end up with dramatically different outcomes, simply because of when the bad years occur.

That’s sequence risk in action.

Protecting Against Sequence Risk

The good news? You can plan ahead.

Here are a few strategies to protect your retirement from this overlooked danger:

1. Build a Safety-First Income Base
    Ensure your essential living expenses are covered by guaranteed income sources — Social Security, pensions, annuities, or a bond ladder. This way, you don’t have to sell stocks during a downturn just to pay the bills.
2. Segment Your Portfolio Into “Buckets”
    Create a “short-term bucket” of safe, liquid assets (cash, CDs, short-term bonds) to cover several years of withdrawals. Keep your “long-term bucket” invested for growth. This reduces the risk of selling growth assets at the wrong time.
3. Use Roth Conversions Strategically
    By converting portions of pre-tax accounts into Roth IRAs during lower-tax years, you reduce future required withdrawals and create a tax-free income source that isn’t subject to forced selling.
4. Reduce Risk During the Critical Window
    You don’t have to abandon growth. But gradually de-risking your portfolio in the years before retirement can protect you against a badly timed bear market.

The Bottom Line

Retirement isn’t just about getting there.

It’s about staying retired — no matter what the market does next.

That’s why smart retirees don’t leave sequence risk to chance.

They build predictable, protected income streams so market volatility can’t derail their plans.

Because the real goal isn’t just surviving retirement…

It’s living it with confidence, freedom, and peace of mind.

Let’s Chat.