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Sequence of Returns Risk: Why Bad Early Years Hurt Retirees Most

By the Can I Retire Calc team · Last updated October 30, 2026 · General education, not personal advice

Most calculators use an average return, such as 6% a year. But real markets do not deliver the average every year. They go up and down, and for someone who is withdrawing money, the order of the ups and downs can matter as much as the average.

What is sequence of returns risk?

It is the risk that poor market returns arrive early in retirement, just when you begin withdrawing money. When your portfolio falls and you still withdraw each year, you sell investments at low prices, and there is less left to recover when markets rebound.

A simple example

Two retirees each start with $500,000 and withdraw $30,000 at the start of every year. Over three years they experience the same three returns, only in a different order.

• Retiree A sees -20%, then -10%, then +15%.
• Retiree B sees +15%, then -10%, then -20%.

After three years, Retiree A has about $323,600 and Retiree B has about $343,600. The returns are identical and the withdrawals are identical, but the retiree who had the bad years first ends with less. Stretch this over 25 or 30 years and the gap can grow large enough to decide whether the money lasts.

Why it matters when you are accumulating, too

While you are saving, the opposite is true: poor returns early are not harmful and can even help, because you buy more shares at lower prices with each contribution. The danger zone is roughly the five years before and after you retire, sometimes called the retirement red zone.

How to reduce the risk

1. Keep a cash cushion. Holding one to two years of spending in cash or short-term bonds lets you avoid selling stocks after a drop.
2. Be flexible. Skipping an inflation increase or trimming spending a little in bad years can have a surprisingly large effect.
3. Use guaranteed income. The more of your spending that is covered by Social Security or a pension, the less you need to withdraw.
4. Work a little longer or part-time. Even a year or two of extra income during a weak market helps.
5. Diversify sensibly. A mix of stocks and bonds that fits your comfort level can reduce the size of the swings.
6. Review every year. Adjust your withdrawals gradually based on your balance.

How our calculator shows this

The calculator's "chance your money lasts" figure runs thousands of simulated markets with ups and downs, so it captures this risk in a way a single average cannot. If your steady-return estimate says you are on track but the chance is lower than you would like, that gap is mostly sequence risk. You can change the size of the ups and downs under Advanced options. See how it works.

This article is for general educational purposes and is not financial, tax or legal advice. Rules and limits change; confirm details with official sources or a qualified professional. See our Disclaimer.