SEQUENCE OF RETURNS RISK

The Order of Returns Matters in Retirement

Two retirees begin retirement with the exact same $1,000,000 portfolio and withdraw $40,000 per year, adjusted for inflation. Both earn an average annual return of 6% over a 30-year retirement.

The only difference is when market losses occur.

That difference can have a dramatic impact on how long retirement savings last.

Negative Returns Early

Market declines occur during the first five years of retirement.

When significant losses happen early, retirees are forced to withdraw income from a portfolio that has already declined in value. Those assets are no longer available to participate in the eventual recovery.

This combination of market losses and ongoing withdrawals can permanently reduce the portfolio’s ability to generate future income.

Illustrative Ending Portfolio Value

$122,000

Portfolio nearly depleted.

Same Average Annual Return

6%

Before Withdrawals

Both retirees earned the same long-term average return.

The difference was simply the sequence of returns.

Negative Returns Late

Market declines occur during the final five years of retirement.

When positive investment returns occur during the early years of retirement, the portfolio has an opportunity to grow while supporting income withdrawals. Later market declines typically have a much smaller impact because the portfolio has benefited from years of compounded growth.

Illustrative Ending Portfolio Value

$1,119,000

Portfolio remains strong throughout retirement.

The Takeaway

Investment returns are only part of the retirement equation.

The timing of those returns can be just as important as the returns themselves.

Managing downside risk during the early years of retirement may help preserve assets, support a more sustainable income strategy, and reduce the likelihood of running out of money later in life.

Risk management is not about avoiding market growth—it’s about helping protect the retirement you’ve spent a lifetime building.

Fine Print

Hypothetical example for illustrative purposes only. Assumes a $1,000,000 starting portfolio, $40,000 annual withdrawals adjusted for inflation, and a 6% average annual return before withdrawals. Results are hypothetical, do not represent actual investment performance, and are not a guarantee of future results.