Sequence Of Returns Risk
Markets are unpredictable. Your retirement plan shouldn’t be.
What This Means
One of the biggest concerns I hear from people approaching retirement is, “What if the market crashes right after I retire?”
That’s a fair question because the timing of market declines matters. Financial planners refer to this as sequence of returns risk—the risk of experiencing poor market returns while you’re beginning to take withdrawals from your portfolio. If you’re withdrawing money while your investments are temporarily down, it can put added pressure on your portfolio.
The good news is that this doesn’t mean your retirement plan has failed. Market declines are normal and should be expected over a retirement that may last 20 or 30 years. The goal isn’t to predict when they’ll happen. The goal is to build a retirement plan that’s prepared for them.
That’s why retirement planning is about much more than choosing investments. It’s about understanding where your income will come from, maintaining cash reserves, knowing when to make small spending adjustments, and keeping enough growth in your portfolio for the years ahead.
When you have those pieces in place, temporary market declines become something you manage—not something you fear.
Common Questions
What is sequence of returns risk?
It’s the risk of experiencing poor market returns during the first several years of retirement while you’re taking withdrawals from your portfolio. Those early losses can have a greater impact than similar losses later in retirement, which is why planning for them is so important.
Can I retire during a bear market?
Yes. A bear market doesn’t automatically mean you need to delay retirement. The decision depends on your withdrawal needs, guaranteed income sources, cash reserves, and the flexibility built into your retirement plan. A well-designed plan should account for market declines because they’re a normal part of investing.
Why don’t I just move everything to bonds when I stop working?
You still need to be positioned for long-term growth. It’s probably a better idea to move a portion of your income other than bonds. Retirement can last 20-30 years and if you are not poisoned for growth inflation will impact your future spending.
What should I do if the market crashes right after I stop working?
Don’t panic. A properly designed retirement plan should already account for this possibility. Cash reserves, fixed income sources like Social Security, and temporary spending adjustments can all help reduce the need to sell investments at depressed prices.
What is the most important thing about portfolio withdrawals?
The most important thing is making sure your withdrawal rate is sustainable. Taking too much too early can put unnecessary pressure on your portfolio, while a well-designed withdrawal strategy gives your investments the opportunity to continue supporting you for decades.
Remember This:
You don’t need perfect timing. You need a plan that can handle imperfect timing.