05/30/2025
Let’s talk about something that doesn’t get enough attention when planning for retirement: Sequence of Returns Risk.
When it comes to investing, we often focus on the average return over time. But here’s the truth — the order in which you experience those returns matters. A lot.
As humans, we can't predict whether the market will be up or down when we retire. And if we happen to hit a few negative years early in retirement — while also withdrawing income — it can seriously impact how long our money lasts.
So what can we do?
One powerful strategy is to build in supplemental income sources that aren’t tied to the stock market. These non-market-correlated income options can give your investments time to recover during down years — and that can make a big difference.
When you avoid pulling from your invested accounts during downturns, you give them the chance to bounce back in the up years. It’s not just smart — it could mean the difference between running out of money and living comfortably through retirement.
đź“Š Example:
Imagine you retire with $1,000,000 invested and plan to withdraw $100,000 each year for 20 years.
If you withdraw every year regardless of market performance, market downturns early on could drastically reduce your portfolio’s lifespan.
If the market goes down 20,30 or even 40%, your portfolio loses potential $200-400,000 and the $100,000 income. What happens if you have multiple down years in a row?
But if you use supplemental income during even the three worst-performing years, your portfolio could last significantly longer — potentially leaving hundreds of thousands more at the end of 20 years.
The takeaway: It's not just about how much you have — it's about how and when you use it.
đź’ˇHave you thought about where your income will come from in the down years?
