Two retirees. Same portfolio. Same returns. One runs out of money. Here’s the risk most retirement plans overlook, and how to protect against it.
Two retirees. Same portfolio size. Same average annual return over 20 years. One runs out of money at 82. The other has $1.8 million left at 90.
The difference isn’t luck. It’s timing.
This is sequence of returns risk and it’s the most underexplained threat in retirement planning.
Why the Order of Returns Matters
When you’re still working and saving, bad market years are recoverable. You keep contributing, prices are lower, and time is on your side. Sequence doesn’t matter much.
Retirement flips that dynamic completely.
The moment you start drawing income from your portfolio, a market drop forces you to sell shares at a loss to fund your life. Those shares are gone. They’re not there to recover when markets bounce back. The math doesn’t fix itself.
A 30% drop in year one of retirement can permanently impair a plan. The same drop in year fifteen, when your portfolio has had over a decade to compound, is a different story. You come through fine.
Same average return. Different timing. Completely different outcome.
The Risk Zone
The five years before retirement and the five years after it carry more weight than any other period in your financial life. A significant loss in the risk zone can permanently impair a retirement plan in a way that decades of strong accumulation can’t undo.
2026 has been a live demonstration of this. Markets swung hard early in the year on tariff headlines and rate uncertainty. Retirees with strong income structures didn’t feel it. Those withdrawing heavily from equities did.
What You Can Actually Do About It
You can’t control when markets move. But you can design a retirement income structure that doesn’t force you to sell equities when prices are down.
Keep 1–2 years of living expenses in cash or short-term bonds entering retirement. This is a spending buffer. When markets drop, you draw from cash, not stocks. It buys time for equities to recover without locking in losses.
Build a stable income floor. Social Security, a pension if you have one, or high-quality bonds. If your essential expenses are covered by income that doesn’t depend on stock market performance, a market drop becomes manageable rather than urgent.
Think about withdrawal sequencing. Which accounts you draw from and in what order. This affects both your tax exposure and your long-term sustainability. This isn’t a set-it-and-forget-it decision.
The Bigger Point
Sequence of returns is ultimately an income design problem, not just an investment problem. The question isn’t whether your portfolio will experience a down year in retirement. The question is whether your income plan is built to absorb it without derailing.
That takes coordination across your investment strategy, your income sources, and your tax situation. When those pieces are working together, a volatile year is a footnote. When they’re not, it can be a turning point.
If you’re within ten years of retirement and haven’t stress-tested your income plan for sequence of returns, that’s the conversation worth having now before the risk zone begins.
Let’s keep moving forward, together.