sequence of returns risk

Sequence of returns risk is the risk that the order of market gains and losses matters once you start withdrawing money. Poor years early in retirement hurt more than the same poor years later. You sell shares at low prices to fund spending, so fewer shares remain to recover.

A round example. For example, two retirees each hold $1,000,000 and withdraw $50,000 a year. Both see the same yearly results, but in opposite order. The one who meets the losses first can end with a smaller balance. The numbers are for illustration only and do not predict any result.

Ways planners address it. Common tools include holding a cash reserve for near-term spending, adjusting withdrawals in weak years, and timing when Social Security begins. Each has trade-offs and costs. None removes the risk.

Why it matters to your plan. Couples nearing retirement often have the most to lose from a bad early stretch. A plan that tests different market orders shows how much room you have to give and to leave an inheritance. See our retirement planning page.