The Steward's Desk · Retirement income
Two retirees can earn the same average return and end up in different places. The order of the returns is the difference, and a plan can prepare for it.
Jesse Plunkett, CEPA®, CRPC®
July 12, 2026 · Meet your advisor · 
Sequence-of-returns risk is the chance that the order of your investment returns, not just their average, decides how long your money lasts. Two retirees can earn the same average return over the same number of years, and the one who hits the rough stretch first, while withdrawing, can end up with meaningfully less.
While you're still saving, the order of returns barely registers. A rough market early in your career can even help, because every contribution buys at lower prices and has decades to recover. Withdrawals reverse that math. Once you're selling shares to fund your life, a downturn in your second year of retirement is a different event than the same downturn in your twentieth.
The mechanics are plain. Every withdrawal taken during a downturn sells more shares to raise the same cash, and those shares aren't there to participate when the market turns. A thirty-year average can look perfectly healthy on paper while the portfolio that lived through those years, in that particular order, ran short. The average was never the problem. The order was.
It cuts both ways, which is worth saying out loud. A favorable sequence early can leave a retiree with more than the plan assumed, and an unfavorable one can do the opposite without anyone making a single mistake. That's what makes this a risk to plan around rather than an error to avoid: it's luck, and the job of the plan is to shrink what the luck can change.
A simple illustration makes the point concrete. Picture two retirees who each start with $1,000,000, each earn the very same set of yearly returns over 25 years, and each begin by withdrawing $50,000, rising 3% a year for inflation. The only difference is the order the returns arrive in. The retiree who meets the worst years first sells shares into those declines and can run out of money; the one who meets the identical returns in the opposite order, the good years first, never does. Same average, same withdrawals, two different endings, decided by sequence alone. This is a hypothetical for illustration only, not a projection, and actual results vary; the lesson is in the mechanism, not the figures.
Your savings are usually at their peak just as withdrawals begin, and every remaining year of spending depends on them. A market decline in that window touches the most dollars with the most years still to fund. The same decline arriving late in retirement simply has less left to affect.
That's why the years on either side of your retirement date deserve the most deliberate planning. None of this is a prediction that a downturn is coming, and it isn't a reason to fear the date on your calendar. Nobody gets to choose the sequence they retire into. What you can choose is how exposed your spending is to whatever arrives, and that is a design decision with well-tested answers.
It helps to separate two things that both get called "risk." The first is volatility, the year-to-year swing in your balance. US stocks have averaged something like 10% a year, with swings wide enough that a typical year can land anywhere from roughly minus 8% to plus 28%, and an unusual year wider still. Morningstar's Ibbotson SBBI series, which has tracked US large-company stocks back to 1926 and is the standard reference for this kind of question, puts the compound annual return near 10% and the year-to-year standard deviation close to 19%. That second number is the arithmetic behind a range that wide. Those swings are genuine, but for a diversified, long-term investor they have always been temporary. Across the SBBI record since 1926, no 20-year stretch of a broadly diversified US stock portfolio has ended in a loss, dividends included, though past performance is not indicative of future results and no stretch of history guarantees the next one.
The second risk is the one that actually ends retirements, and it works more slowly: depletion, the chance of outliving the money. It rarely comes from a crash. It comes from spending that outpaces growth, from inflation eroding purchasing power year after year, and from a portfolio kept so conservative that its returns cannot keep up with the life it has to fund. A wall of bonds and cash can feel safe, yet over a thirty-year retirement the larger danger is usually running short, not weathering a rough couple of years. Managing sequence risk is a balancing act: hold enough steady assets to avoid selling stocks at the bottom, without retreating so far from growth that you trade a temporary risk for a permanent one.
By keeping a few years of typical spending in bonds and cash, so a downturn doesn't force you to sell stocks at a low point. Your spending comes from the steadier buckets while your stock investments get time to recover before you need them. This lowers sequence-of-returns risk. It doesn't remove it.
The buckets exist so that no single year can force your hand. When stocks have had a bad stretch, spending comes from the cash and bond buckets, and nothing has to be sold at a loss to pay for groceries or the trip you'd already planned. When markets have been generous, we refill the steadier buckets from the growth. The structure doesn't guarantee protection from a bad sequence of returns. It's designed to manage that risk, not eliminate it.
Flexibility, which is the other lever. Instead of a static withdrawal rate, your spending has an upper and lower bound and moves within that range depending on how your portfolio is actually doing. Small, planned adjustments in rough years spare the portfolio from compounding a bad stretch.
The floor is the part worth underlining. It protects the essentials, the version of your life you're not willing to shrink, and it doesn't move in a downturn. What flexes is the ceiling: the extras that can wait a season without changing what your retirement is for. In my experience, retirees who know in advance exactly what would flex, and what never would, get through rough markets with far less second-guessing.
The most powerful version of this is decided before markets move. A household might agree in advance that if stocks fell hard, say 30% or more, they would trim planned spending by around 15% for the twelve to eighteen months that followed. Set ahead of time, from a calm chair, that is a small and temporary adjustment. Decided in the middle of a frightening market, the same choice feels impossible. Selling fewer shares at the bottom is the single most powerful thing within your control against a bad sequence, and agreeing to the rule in advance is what makes it doable when the moment actually comes.
If you're close to retirement and this risk has been sitting in the back of your mind, the reassuring part is how ordinary the answers are. A few years of spending kept out of stocks, a spending range instead of a fixed rate, and a withdrawal order that adapts to the year you're actually having. Sequence risk rewards preparation, and preparation is available to everyone.
That's a normal first project to do together. A short call is the place to start.
This is the risk a bucket approach is built for. We keep a few years of typical spending in bonds and cash, so a downturn doesn't force you to sell stocks at a low point, and your stock investments get time to recover before you need them. This lowers sequence-of-returns risk. It doesn't remove it.
Not by itself. Delaying is one lever, and it's rarely the only one available. A cash and bond buffer, a flexible spending range, and coordination with your Social Security start date can all reduce how exposed your first years are. The useful response is a plan designed for a rough start, not an indefinite wait.
Generally, yes. The exposure is greatest in the years just before and after your retirement date, when the balance is at its largest and decades of spending still depend on it. As the remaining horizon shortens, a downturn has fewer spending years to affect. Your plan still gets reviewed every year, because life keeps changing.
No, and it's fair to be skeptical of anything that claims otherwise. What a plan can do is decide in advance where spending comes from in a down year, keep several years of it out of stocks, and build in a spending range with a firm floor. Those choices manage the risk without removing it.