The Retirement Risk You’re Probably Not Planning For: Sequence of Returns

When most people think about retirement risks, they picture stock market crashes, inflation, or outliving their money. All important. All real. But there’s one sneaky little risk that rarely gets the attention it deserves—and it can make or break your entire retirement plan.

It’s called sequence of returns risk. And if you’re retired—or getting close—it’s something you can’t afford to ignore.

So, what is sequence of returns risk?

Let’s say two people invest the same amount of money, earn the same average return over 20 years, and withdraw the same amount every year during retirement.

But one starts retirement in a bull market. The other? A downturn.

Same average return, totally different outcomes.

That’s the sequence of returns risk in action. It’s not just how much your investments return—it’s when those returns happen that really matters, especially when you're regularly withdrawing from your portfolio.

Why it matters more in retirement

During your working years, market drops are just bumps in the road. You’re still contributing. You’ve got time. But in retirement? You’re withdrawing. And if the market drops early on, you're pulling money from a shrinking portfolio.

That double hit—withdrawals plus losses—can seriously reduce how long your nest egg lasts.

Here’s the kicker: even if the market recovers later, the damage might already be done.

How do you protect against it?

You can’t predict the market. But you can plan around this risk. A few ways we help clients reduce sequence of returns risk:

• Segmenting assets by time horizon: We’ll structure short-term cash needs differently than long-term growth investments, so you’re not forced to sell stocks in a downturn.

• Using a cash reserve buffer: A cushion of 1–3 years of living expenses can prevent panic selling when the market dips.

• Dynamic withdrawal strategies: Adjusting your withdrawal rate based on market performance can help stretch your savings and reduce pressure during bear markets.

• Proper asset allocation: Diversification isn’t just a buzzword. It’s one of the simplest ways to reduce volatility and smooth out returns.

You only retire once—make the plan count

Sequence of returns risk isn’t obvious. It doesn’t show up in flashy headlines or standard portfolio reviews. But it’s real. And the earlier you plan for it, the better.

At Halter Ferguson Financial, we help clients retire with more than just a pile of investments—we help build strategies that withstand the realities of retirement. If you want a custom plan that takes risks like this into account, let’s talk.