The Silent Risk That Can Destroy a Retirement Plan

Most people believe that if their investments average a “good” return over time, they’ll be fine in retirement. That assumption is one of the most dangerous myths in financial planning.

The reality is this: The order in which returns occur matters just as much—if not more—than the average return itself.

​This is known as Sequence of Returns Risk, and it’s one of the biggest reasons retirees run out of money earlier than expected.

Sequence of returns risk refers to the danger that poor market returns occur early in retirement, precisely when you begin withdrawing income from your portfolio.

When you’re still working and contributing, market downturns can actually help you by allowing you to buy assets at lower prices.

But once you stop contributing and start withdrawing, the rules change completely.
Losses early in retirement don’t just hurt—they compound the damage.

Why Early Losses Are So DestructiveImagine two retirees with the same portfolio value and the same average rate of return over 20 years.

The only difference?

• Retiree A experiences negative returns in the first few years of retirement.
• Retiree B experiences negative returns later, after years of growth.
  
  

Even though the average return may be identical, Retiree A is far more likely to:

• Deplete their portfolio early
• Be forced to reduce lifestyle
• Or run out of money altogether
  
  

Why?

Because withdrawals during down markets permanently remove capital that can never recover.
You’re not just losing money—you’re losing future growth on money that no longer exists.

The Math Most People Never SeeHere’s the part that surprises people.

If a portfolio drops 20%, it doesn’t need a 20% gain to recover. It needs a 25% gain—just to get back  even.

Now layer in:

• Annual withdrawals
• Inflation
• Management fees
• Taxes
  
  

This is how retirees with “good investments” still fail.

Not because they didn’t earn enough over time—but because losses happened at the worst possible moment.

Why This Risk Is Often Ignored: Sequence of returns risk doesn’t show up clearly on average-return charts.

It doesn’t get emphasized in glossy brochures.
It’s rarely explained in simple terms.
And many advisors focus on accumulation—not distribution.

But retirement is not about accumulation anymore.
It’s about preservation, income, and control.

Ignoring sequence risk is like ignoring weather conditions before taking off in an airplane because the average forecast looks fine.

How Smart Planning Addresses Sequence RiskManaging sequence of returns risk isn’t about predicting markets.

It’s about structuring your retirement income so that market downturns don’t force you to sell assets at the wrong time.

That may involve:

• Creating income sources not tied directly to market performance
• Building buffers that allow withdrawals without selling during losses
• Reducing volatility exposure during the distribution phase
• Rethinking where and how retirement income is sourced
  
  

The goal isn’t to avoid growth—it’s to avoid compounding losses.
The TakeawayMost retirees don’t fail because the market underperforms forever.

They fail because:

• Losses occur early
• Withdrawals magnify those losses
• Recovery becomes mathematically impossible
  
  

Sequence of returns risk is quiet, invisible, and devastating—but it’s also manageable with proper planning.

Retirement success isn’t about chasing the highest returns.
It’s about protecting the order in which those returns happen.

If you don’t plan for sequence risk, the market will plan it for you—and it rarely does you any favors.

If you want to learn how to protect yourself from the Sequence of Returns Risk, make sure you reach out to us today.

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