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  • Barry Boscoe

Navigating the Sequence of Returns Risk in Retirement Planning

The Challenge of Retiring in a Down Market

Retiring during a market downturn presents unique challenges, often requiring meticulous planning to protect retirement savings. The experience of selling investments in a down market is an unpleasant one, and it's something most people would prefer to avoid.

Understanding Sequence of Returns Risk

When retirees start withdrawing from their savings during a market downturn, especially early in retirement, it can significantly impact the longevity of their retirement funds. This risk, known as sequence of returns risk, is crucial to consider in retirement planning.

Why Sequence of Returns is Critical

Market fluctuations are unpredictable, and a bear market can occur unexpectedly. For retirees who begin their retirement during such a period, making systematic withdrawals can deplete their portfolio, affecting their retirement lifestyle. This risk is heightened by the fact that retirees are no longer contributing to their savings, eliminating the chance to rebuild balances as they could during their working years.

Example of Sequence Risk Impact

To illustrate, consider two retirees, each starting with $500,000 and withdrawing $20,000 annually for five years. Investor A begins retirement in a bull market, and despite a significant loss in the fifth year, ends up with $378,376. On the other hand, Investor B starts retirement in a bear market and ends up with $326,831 - a $51,545 difference compared to Investor A, highlighting the impact of sequence of returns risk.

Strategies to Mitigate Sequence of Returns Risk

1. Determining a Sustainable Withdrawal Rate

It's essential to know how much you can safely withdraw annually without exhausting your retirement funds. The traditional 4% rule might not suit everyone, so it's advised to use formulas, online calculators, or consult a retirement specialist to design a personalized income and investment plan.

2. Adopting a Retirement Bucket Strategy

This strategy helps balance short-term needs and long-term growth:

  • Bucket No. 1 (Short-term): This should have enough cash or cash equivalents to cover expenses for three years, alongside Social Security benefits and pension income. This buffer can prevent the need to sell stocks at a loss during a market downturn.

  • Bucket No. 2 (Intermediate-term): This could include low-risk investments like fixed annuities, CDs, or high-quality bonds with laddered maturity, providing stability, possible guaranteed and protected income and replenishing the short-term bucket.

  • Bucket No. 3 (Long-term): This should contain higher-risk investments like stocks to provide growth against inflation and longevity risk.

3. Proactive Retirement Planning

Transitioning from accumulation to preservation requires significant adjustments. It's advisable to start this transition at least 5 to 10 years before retirement. Waiting too long can make it difficult to adjust to the required changes effectively and protect against the sequence of returns.


Protecting retirement savings from the sequence of returns risk involves, understanding the risk, determining a sustainable withdrawal rate, implementing a structured strategy like the bucket approach, and proactive planning. These steps are crucial for ensuring a stable and secure retirement, even in the face of unpredictable market conditions. The key is to start early, plan carefully, and adjust as needed to safeguard your retirement years from the potential pitfalls of market downturns.

If you would like to learn more about how the sequence of returns can alter your retirement planning, please contact me at:

Office: 818-342-9950

Mobile: 818-802-0686

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