Sequence-of-returns risk

Sequence-of-returns risk is the damage from poor returns in the first years of withdrawals. The same average return can succeed or fail depending on whether the bad years come early or late.

Arc · Published September 18, 2026 · Updated September 18, 2026

Why order matters

While you are adding money, a drop means new contributions buy at lower prices. Once you are selling shares to spend, a drop means you sell more shares to raise the same cash. Those shares are not around for the recovery.

Two retirees can have the same average return and different outcomes if one hits a bear market in year one and the other in year twenty.

What people actually do about it

Spend a lower starting rate than the historical maximum.
Keep a cash or bond sleeve so stocks are not sold in a bad year.
Cut spending when the portfolio drops.
Delay retirement, or work part-time through the first years.

Common questions

Does sequence risk matter while I am saving?

Much less. Contributions turn early declines into more shares. The risk shows up when withdrawals and declines overlap.

Sources

Bengen, William P. “Determining Withdrawal Rates Using Historical Data.” Journal of Financial Planning, 1994.