Sequence of returns risk refers to the danger that the timing of withdrawals from a retirement account will coincide with poor market performance. This risk is particularly important during the early years of retirement when portfolio values are at their highest.
Why It Matters
- Early Losses Hurt Most: Poor returns in the first few years of retirement can permanently impair a portfolio's ability to recover.
- Withdrawal Impact: Taking distributions during market downturns locks in losses and reduces the portfolio's recovery potential.
- Time Matters: The same average return over different sequences can produce vastly different outcomes.
Mitigation Strategies
Our Monte Carlo simulator helps you explore various strategies to manage this risk, including:
- Dynamic withdrawal strategies
- Diversified asset allocation
- Cash buffers and bond ladders
- Flexible spending in retirement