Sequence Risk: Bad Timing Hurts Most at the Start

The story: Same returns, opposite order

Ruth and Grace retire with the same savings and the same yearly returns in opposite order, and only Grace’s money runs out early.

1. Narrator: Ruth and Grace each retire with $600,000 and spend $36,000 a year. These are example numbers.
2. Narrator: Over 25 years they get exactly the same yearly returns, just in opposite order.
3. Grace: My first three years were losses. I kept selling to pay my bills while prices were low.
4. Ruth: My first years were strong. The losses came later, after my savings had grown.
5. Narrator: Grace sold more shares at low prices, so less was left to recover. In this example, Grace’s money runs out. Ruth’s lasts all 25 years.
6. Narrator: Same average. Different order. Very different results. That’s sequence risk.

What you’ll learn

1. Same average, different results

   Two retirees can earn the same average return and end up in very different places. Once you withdraw every year, losses early on shrink the base that has to recover.

2. The danger zone

   The years just before and just after retiring matter most. A big drop then hurts more than the same drop 15 years later, because you’re selling to live on while prices are low.

3. Defenses you control

   A cash reserve to spend from in bad years, spending that can flex, waiting to claim Social Security for a bigger check, and part-time work all cut how much you must sell when prices are low.

4. What you can’t control

   No one can choose the order of market years. You can choose your plan: how much you take out, which account it comes from, and how flexible you can be.

Key words

sequence-of-returns risk

harm from bad market years coming early, while you withdraw

danger zone

the years just before and after retiring

Also called: retirement red zone

Common questions

Are the returns in the game real history?

No. They’re example returns, chosen to show the idea. Real markets have had runs of bad years early in some people’s retirements.

Should I move everything to cash before I retire?

That trades market risk for inflation risk. Many people keep a cash reserve and leave the rest invested. A planner can help you weigh your own mix.

Remember this

It’s not just the returns. It’s the order.

Try it: Stress-test your plan

1. Run your numbers in the public retirement calculator.
2. Run them again with a lower expected yearly return, and see how the result changes.
3. Write down one defense that could fit you: cash, flexible spending, waiting on Social Security or part-time work.

No account: use the public Retirement Calculator (/tools/retirement-calculator).