Sequence of Returns Risk Explained Simply

Published March 1, 2026 • 7 min read

Sequence risk means poor market returns early in retirement can damage your plan more than the same losses later, because withdrawals lock in those losses before recovery can occur.

Why sequence risk matters

• Withdrawals during market drawdowns reduce remaining capital.
• Recovery periods start from a smaller asset base.
• Fixed spending assumptions can accelerate depletion risk.

Ways to reduce sequence risk

• Keep a short-term cash reserve for planned withdrawals.
• Use flexible spending rules when markets decline.
• Adjust portfolio risk and withdrawal rate annually.

Action framework

1. Stress-test withdrawals against poor first-year returns.
2. Set a cash bucket and rebalancing policy in writing.
3. Define temporary spending cuts before a downturn happens.

Stress-Test Retirement Projections

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