Sequence-of-returns risk in retirement  

Do you have enough money set aside to enjoy a long and comfortable retirement? It’s hard to know for sure—especially with all the economic forces that could affect your nest egg. While some, like inflation, are well known, this article explores an equally serious—but less familiar—hazard called sequence-of-returns risk (also known as sequencing risk).

Older couple sitting outdoors among trees.

What is sequence-of-returns risk?

 We all know that the market has ups and downs. Sequence-of-returns risk refers to the fact that the timing (or sequence) of withdrawals in retirement may have a negative impact on your portfolio. 

Why does the order (sequence of returns) matter?

Whenever you take money from your retirement account, you’re selling assets (stocks, bonds, etc.) to support your lifestyle. If the market drops early in retirement, your assets will be worth less and you’ll need to sell more of them to generate the money you need. Unfortunately, this sell-off means you’ll have fewer assets to rely on later in life and could miss out on a lot of growth if the market eventually recovers. If, on the other hand, the market drops toward the end of retirement, you’ll have enjoyed years of steady returns—which can help offset the impact of any withdrawals and losses. 

Here’s an example of sequencing risk in retirement

They say timing is everything in life, and that’s especially true when it comes to your retirement. Let’s look at the impact sequence-of-returns risk has on two identical retirement accounts. In this example, both accounts start with $100,000, withdraw $10,000 a year, and average an annual return of 7%. The only difference between the two accounts is that the owner of “Account A” experiences a down market in their ninth year of retirement, while the owner of “Account B” faces a downturn in year two.

Early Negative Returns Chart

As you can see, the owner of “Account B” ends up with $31,307 less than the owner of “Account A” simply because he or she encountered a down market much earlier in retirement. That’s sequence of returns risk in a nutshell.

How do I protect my portfolio from sequence-of-returns risk?

 While a market downturn is beyond your control, there are a few steps you can take to reduce the impact poorly timed withdrawals could have on your portfolio:

Continue working – If you haven’t retired, you may want to delay your announcement until the markets have recovered. If you’ve already retired, you may want to return to the workforce so that you can temporarily suspend or reduce your withdrawals. 

 Add stability – As you near or enter retirement, consider adding stable solutions like guaranteed annuities1 to your portfolio. While you might lose a little growth, you can count on these assets to help sustain you during down markets. 

 Plug the hole – Rather than sell investments during a bear market, you can use other assets—such as the cash value of a life insurance policy—to fill the gap in your retirement budget. Then, if the market rebounds, you can “repay” yourself by taking withdrawals when the conditions are right. 

Make adjustments – While many advisors recommend a 4% withdrawal rate during retirement, this figure is not set in stone. If your budget allows, you may be able to reduce your withdrawal rate by temporarily cutting back on expenses. 

Frequently asked questions

Drawdown risk is the possibility that you’ll outlive your savings by withdrawing too much money from your retirement savings accounts too quicky. 

While the 4% rule is a common guideline, the answer depends on several factors, including your age, health, intended lifestyle, and other financial assets. That’s why it’s so important to meet with a financial professional who can evaluate your needs and put together a realistic estimate.

As a result of the Secure Care Act 2.0, the mandatory withdrawal age for RMDs has risen to 73 for those born from 1951 through 1959, and to 75 for those born in 1960 or later.2

In general, you can begin to withdraw money from your retirement accounts—without penalty—at age 59½. If you withdraw funds before that time, you’ll likely have to pay a 10% IRS penalty. 

As of August 2023, the average Social Security check was $1,705.79. While that may be enough to cover your basic needs (food, housing, utilities, etc.), it might not be enough to allow you to lead the lifestyle you want. If you’d like to have a realistic assessment, feel free to contact your New York Life agent.3


Related cONTENT

Want to learn more about income annuities and sequence-of-returns risks?

A New York Life financial professional can help determine what’s right for you.

1Guarantees are based upon the claims paying ability of the issuing company.

2“Secure Act 2.0 – When Does the RMD Start?,” National Society of Tax Professionals, May 30, 2023:

3“What is the Average Social Security Check?,”, October 4, 2023: