Retirement income guide
Sequence-of-returns risk: why the order of returns matters
While you're saving, a bad year hurts less because you have time to recover. Once you're taking withdrawals, the same bad year can do lasting damage. That gap is sequence-of-returns risk.
By Dan Huslin, licensed insurance agent · Updated November 2026
The same returns, in a different order
Here is a hypothetical. Two retirees each start with $1,000,000 and withdraw $50,000 at the start of every year. Both see the exact same ten annual returns, which average 3.6% a year. The only difference is the order.
| Bad years first | Bad years last | |
|---|---|---|
| Returns, years 1 to 10 | -18%, -10%, 4%, 8%, 12%, 14%, 10%, 8%, 6%, 2% | 2%, 6%, 8%, 10%, 14%, 12%, 8%, 4%, -10%, -18% |
| Balance after year 1 | $779,000 | $969,000 |
| Balance after year 3 | $630,344 | $998,071 |
| Balance after year 10 | $645,026 | $846,688 |
Same average return, same withdrawals, and a gap of about $200,000 after ten years. The retiree who hit the losses first was selling shares at low prices to fund living expenses, so there were fewer shares left to recover when markets turned. This example is hypothetical, ignores taxes, fees and inflation, and isn't a forecast.
Why it matters most near retirement
The years just before and just after you retire carry the most weight, because that's when your balance is largest and your withdrawals are just beginning. A big drop then is hard to recover from. The same drop twenty years in matters much less.
Ways people reduce the risk
- Cover essentials with guaranteed income. If Social Security, a pension and perhaps an income annuity pay your must-have bills, you don't have to sell investments in a down market to eat.
- Keep a cash or short-term reserve. One to two years of spending set aside lets you leave stocks alone during a downturn.
- Be flexible with withdrawals. Trimming spending in a bad year helps more than most people expect.
- Use protected accounts for part of the money. Fixed-rate and fixed index annuities don't lose value when markets fall. They trade away some upside and access.
- Delay Social Security. A larger check later means smaller withdrawals from savings. See when to claim.
The point of a plan
You can't control the order of returns. You can control how much of your income depends on them. A retirement income review looks at your essential bills, your guaranteed income and how much of your savings has to stay exposed to the market.