Sequence of Returns Risk

Personal Finance

Sequence of returns risk is the danger that poor investment returns in the early years of retirement permanently impair your ability to sustain withdrawals. Two retirees with the same average return over 30 years can have wildly different outcomes if one experiences losses early. Withdrawing from a depleted portfolio means selling shares at low prices, locking in losses, and reducing the base that can recover when markets rebound. Defenses include holding 1-3 years of cash in retirement to avoid forced selling, bond ladders, deferring Social Security, and dynamic withdrawal strategies that reduce spending after bad market years.