Sequence of Returns Risk
Educational only, not financial advice.
Sequence of returns risk is the risk that poor market returns early in retirement (while you're withdrawing money) can permanently damage a portfolio — even if the long-term average return ends up being perfectly fine.
Why it matters
- Withdrawing money during a downturn locks in losses, leaving less capital to benefit when markets recover.
- Two retirees with the identical average long-term return can end up with very different outcomes depending purely on the order returns occurred in.
- This risk is most relevant in the years just before and just after retirement begins.
Simple example
- A retiree who experiences a market crash in their first year of retirement withdrawals is worse off than one who experiences the same crash in their last year, even with identical average returns over time.
- Strategies like holding a cash buffer or a bond 'bucket' are sometimes used to reduce the need to sell stocks during a downturn.
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Reviewed by Greg Parsons. Links checked October 14, 2026. Educational only, not financial advice.