Two people can retire with the same balance, take the same withdrawals, and earn the exact same average return over 30 years — and still end up in completely different places. The only difference is the order the returns arrived in.
The math that quietly works in your favor while you’re saving works against you the moment you retire.
While you’re accumulating, the order of your returns barely matters. A bad year early just means you’re buying shares cheaper; a bad year late gets averaged in with everything else. Over a few decades, what matters is the average. This is why “time in the market” is such durable advice for savers.
Retirement flips it. Once you’re withdrawing instead of adding, the sequence of returns — not just the average — starts to determine whether the money lasts. And the years that carry the most weight are the ones right after you stop working.
Why order suddenly matters
The mechanism is simple and a little brutal. When you take a withdrawal during a down market, you’re selling shares at low prices to cover living expenses. Those shares are gone. When the market recovers, it recovers on a smaller base — because you spent part of it at the bottom. Do that in the first few years of retirement, before the account has had any chance to grow, and you can permanently shrink the pool that has to last the rest of your life.
While saving, a downturn is an opportunity. While withdrawing, the same downturn is a leak you can’t fully patch.
Same average, opposite outcomes
Picture two people who retire with the same balance, take the same withdrawals, and — over 30 years — earn the exact same average return. The only difference is timing. One hits a rough market in the first few years of retirement. The other gets those same bad years near the end.
The one who hit turbulence early can run dangerously low, even though their long-run average was fine. The one who hit it late finishes comfortably, sometimes with more than they started with. Identical average. Very different retirements. The order was the whole story.
The first five years
This is why the stretch around retirement — roughly the last few working years and the first five in retirement — gets called the “retirement red zone.” A strong market in that window gives your plan a tailwind for decades. A weak one puts strain on it from day one. You don’t get to choose which you retire into, and retiring into a good market is luck, not skill. The plan has to be built to survive the other case.
What actually addresses it
You can’t control the sequence. You can control how exposed you are to it. A few planning behaviors do most of the work.
• A cash and short-term buffer. Holding a year or two of spending in cash and short-term bonds means a down market doesn’t force you to sell stocks to buy groceries. You spend from the buffer, give equities time to recover, and refill it in better years.
• Flexible spending. Small, temporary trims to discretionary spending in bad years — a lighter travel budget, a delayed big purchase — take pressure off the portfolio exactly when it’s most vulnerable. Modest adjustments early prevent forced ones later.
• Coordinated withdrawals. Which accounts you draw from, and in what order, affects both how much you’re selling and how much tax you’re paying. Pulling from the right mix of taxable, traditional, and Roth in a given year can reduce how much you have to liquidate at the worst possible time.
None of these predict the market. They’re designed with a goal to make the sequence matter less — to build in slack so an early downturn is an inconvenience rather than a permanent dent.
What it means for you
If you’re within about five years of retirement on either side, this is the question worth getting right — more than chasing an extra point of return. The goal isn’t to time your retirement to a good market. It’s to build a plan that holds up if you retire into a bad one, because that’s the version you can’t rule out.
The average return will take care of itself over 30 years. It’s the first five that decide whether you’re around to enjoy the other twenty-five.
Retiring into a strong market is luck. A plan that survives a weak one is the actual work.
Key takeaways
• While saving, the average return matters most; while withdrawing, the sequence of returns matters too.
• Withdrawals taken during an early downturn lock in losses and shrink the base permanently — the “retirement red zone” around retirement is the most sensitive window.
• Two retirees with the identical average return can have very different outcomes based purely on the order of returns.
• A cash buffer, flexible spending, and coordinated withdrawals are designed with a goal to reduce exposure to sequence risk, without relying on predicting markets.
Common questions about sequence-of-returns risk
What is sequence-of-returns risk?
It’s the risk that the order of your investment returns — not just the average — hurts you once you’re withdrawing. Poor returns early in retirement do more damage than the same poor returns later.
Why doesn’t sequence matter while I’m still working?
Because you’re adding money, not taking it out. An early downturn just lets you buy at lower prices, and it averages out over time. Withdrawing changes that math.
How much cash should I hold heading into retirement?
It depends on your spending, other income sources, and risk tolerance — often a year or two of expenses as a starting point for discussion. The right buffer is specific to your plan, not a universal number.
Can I just avoid stocks in early retirement to be safe?
That introduces a different risk — a portfolio too conservative to keep up with inflation over a 30-year retirement. The aim is managing sequence risk while still growing, not eliminating market exposure.
The content is developed from sources believed to be accurate. It is general in nature, not intended as individualized investment or tax advice, and should not be construed as a recommendation. All investing involves risk, including possible loss of principal. No strategy assures success or protects against loss.
Brent Rupnow is a Registered Representative with, and Securities and advisory services are offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC). Insurance products are offered through LPL or its licensed affiliates. Via Luce Capital is not registered as a broker-dealer or investment advisor. Registered representatives of LPL offer products and services using Via Luce Capital, and may also be employees of Via Luce Capital. These products and services are being offered through LPL or its affiliates, which are separate entities from, and not affiliates of Via Luce Capital.