One Retirement Risk You May Have Overlooked
No one wants to think their retirement security could depend on some stock market luck. But in a way, unless you've accounted for what's known as sequence of returns risk, bad luck could dash your dreams.


There’s a serious retirement risk out there that you might not have heard of, and it could have the power to determine the kind of retirement you will have. Have you thought about how sequence of returns affects your retirement?
The sequence of returns, or the order of the returns in your portfolio, does not matter until you start taking withdrawals out of an account. During your accumulation years while you’re working, you are not subject to this risk because you are not withdrawing money. But when you retire (during your distribution phase) you will be.
First, you must have a mind shift when going into retirement. You must go from an accumulation-only mindset to a distribution, preservation and an accumulation mindset. Just simply rolling your 401(k) into a portfolio and putting more of your assets in fixed income tools, like bonds, is not how you will eliminate sequence of returns risk.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Sequence of returns risk is a result of the timing of withdrawals from a retirement account that can have a negative impact on the overall rate of return on the investment. This may seriously hurt a retiree who depends on the income stream from a lifetime of investing.
What is sequence of returns?
Sequence of returns is pretty much a matter of luck, meaning if you retire during a bull market and start taking withdrawals, your assets will most likely last longer than if you retired and started taking income from an account during a bear market. Considering that the current bull market is the longest in history, this concept could be more important than ever right about now.
Ever wonder why different people have different opinions of investing in the market during retirement? Look at the hypothetical examples showing having $100,000 in the market during a 10-year period and withdrawing 5% each year. You will see that the order of the returns of the market plays a big role in the final outcome. Keep in mind, both of these women experienced the same, real-world rates of return for their portfolios, just in a different order.
An Example: Two women with the same returns, but one goes broke
Initial Balance: $100,000
Withdrawal Rate: 5.00%
Betty Example No. 1
JoAnne Example No. 2
Note: This hypothetical example is for informational purposes only and is not indicative of past, nor intended to predict future performance of any Index or annuity product.
Is it fair to say that the sequence of returns JoAnne experienced may have provided a better result with the market than Betty ? If you look back, you will see they both started with $100,000 however, Betty ran out of money after 15 years, withdrawing a total of $77,593, while JoAnne has withdrawn $95,000 over the same amount of time and still has $58,043 left in her account.
What can you do to protect yourself from sequence of returns risk?
- Use the right tools for the right job. For income, do not put money into a vehicle like the stock market where the sequence of returns plays a big part. Instead, put it into an investment that will guarantee you a payout for life, like an annuity. By guaranteeing your living and lifestyle expenses are covered, you can put your other assets into investments that you won’t be pulling money from on a consistent basis, such as ETFs and bonds.
- Separate your assets into buckets that work for you differently. For example, secure liquid funds needed for large purchases in the beginning years of retirement in a stable vehicle in one bucket of assets, such as a bank account, money market account or CDs. In the next bucket, supplement your Social Security with other products that provide lifetime income, such as annuities. In a third bucket, determine your probable long term care costs and put money in a hybrid long term care product that does not have ongoing costs. That way you will have your long-term care needs covered down the road. All of your remaining assets should be put into an investment vehicle like ETFs, equities, bonds and mutual funds for future growth to keep up with inflation and taxes.
- Meet with a financial professional looking out for your best interest who is a fiduciary.
Did you know one of the biggest concerns for retirees is running out of money — even over death? Why risk your income in retirement based on the order of the returns of the market?
Protecting yourself against sequence of return risk means being prepared for the worst-case scenario. Don’t assume that you will have a bull market during all your retirement years.
Amy Buttell contributed to this article.
Licensed Insurance professional. Investing involves risk, including the loss of principal. No Investment strategy can guarantee a profit or protect against loss in a period of declining values. Any references to protection benefits or lifetime income generally refer to fixed insurance products, never securities or investment products. Insurance and annuity products are backed by the financial strength and claims-paying ability of the issuing insurance company.
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

Matthew Schuller is the president and founder of BrightPath Wealth Management. He takes his responsibility as a fiduciary seriously, because he knows how much good wealth management can mean for clients. He has eight years of experience working for a large financial products wholesaler, where he has helped advisers and insurance agents tailor products to their clients' portfolios.
-
Things that Surprise Business Owners When It’s Time to Sell
The Kiplinger Letter When it’s time to retire and enjoy the fruits of growing their business, owners are often surprised by how tough it is to give up their baby!
-
Stock Market Today: Powell Rumors Spark Volatile Day for Stocks
Stocks sold off sharply intraday after multiple reports suggested President Trump is considering firing Fed Chair Jerome Powell.
-
Five Big Beautiful Bill Changes and How Wealthy Retirees Can Benefit
Here's how wealthy retirees can plan for the changes in the new tax legislation, including what it means for tax rates, the SALT cap, charitable giving, estate taxes and other deductions and credits.
-
I'm a Financial Planner: Here Are Five Smart Moves for DIY Investors
You'll go further as a DIY investor with a solid game plan. Here are five tips to help you put together a strategy you can rely on over the years to come.
-
'Drivers License': A Wealth Strategist Helps Gen Z Hit the Road
From student loan debt to a changing job market, this generation has some potholes to navigate. But with those challenges come opportunities.
-
Financial Pros Provide a Beginner's Guide to Building Wealth in 10 Years
Building wealth over 10 years requires understanding your current financial situation, budgeting effectively, eliminating high-interest debt and increasing both your income and financial literacy.
-
Five Mistakes to Avoid in Your First Year of Retirement
Retirement brings the freedom to choose how to spend your money and time. But choices made in the initial rush of excitement could create problems in the future.
-
I'm an Investing Expert: This Is How You Can Invest Like Warren Buffett
Buffett just invested $15 billion in oil and gas, and you can leverage the same strategy in your IRA to potentially generate 8% to 12% quarterly cash flow while taking advantage of tax benefits that are unavailable in any other investment class.
-
How Much Income Can You Get From an Annuity? An Annuities Expert Gets Specific
Here's a detailed look at income annuities and the factors that determine your payout now and in the future.
-
Your Paycheck Stops in Retirement, But Your Life Doesn't: An Expert Guide to Planning for a Confident Future
Social Security will replace only about 40% of your salary, on average. A solid financial plan will help you plug the gap so you can rest easy in retirement.