Why Sequence of Returns Risk Still Shapes Retirement Outcomes

When it comes to retirement income, it’s not just how much clients earn — it’s when they earn it. Sequence of returns risk remains one of the most critical and misunderstood forces in retirement planning. Even if a portfolio averages a solid 6% return over time, early-period losses can dramatically shorten how long income lasts once withdrawals begin. 

The recent bull market has helped many retirees feel more confident again — and rightly so. Equity markets have been resilient since the 2022–23 downturn, with broad indexes climbing to new highs through 2024 and 2025. But advisors know better than to let optimism blur the fundamentals: a string of strong years doesn’t erase the structural timing risk that retirees face once they start drawing income. 

The Order of Returns Matters More Than the Average 

During accumulation years, volatility averages out — downturns are opportunities to buy low. But in retirement, the math reverses. Withdrawals lock in losses and shrink the capital base that future gains can compound from. 

Consider two retirees who each earn the same average return over 20 years but experience those returns in opposite order. The retiree who faces negative markets in the first few years may run out of money years earlier than the one who encounters the downturns later — even though their long-term averages are identical. 

That’s the sequence effect: the order, not just the magnitude, of returns determines retirement outcomes. 

Why the Risk Persists — Even in a Bull Market 

Markets have delivered impressive gains since the Fed paused its rate-hike cycle, inflation cooled, and corporate earnings rebounded. But history reminds us that bull markets can mask sequence risk. 

A retiree who starts income withdrawals near the top of a market may still face early drawdown pressure if the next few years turn volatile — even if long-term returns remain positive. And with valuations elevated and bond yields normalizing, the next downturn may not offer the easy recovery that followed past bear markets. 

For advisors, this means helping clients see beyond the headlines. A strong market today can coexist with high sequence risk tomorrow if spending assumptions and portfolio allocations aren’t flexible. 

Mitigating Sequence Risk Through Smarter Income Design 

There’s no single cure, but advisors can manage sequence risk through careful income design: 

• Time-segmented portfolios: Drawing early income from short-term, low-volatility assets while longer-term investments ride out the markets. 

• Dynamic withdrawal rules: Adjusting spending based on performance rather than maintaining rigid, inflation-adjusted withdrawals. 

• Partial guarantees: Allocating a portion of assets to stable income sources can buffer against market-driven timing shocks. 

• Stress testing: Demonstrating how a few poor years early on can affect long-term outcomes helps clients understand the stakes — and the solutions. 

These steps shift the focus from maximizing returns to managing timing — a distinction that can mean the difference between confidence and regret in retirement. 

Closing 

The recent market rally has given retirees reason for optimism, but advisors know confidence shouldn’t turn into complacency. Sequence of returns risk never goes away — it only hides behind the next cycle. By modeling timing risk clearly and building flexibility into withdrawal strategies, advisors can help clients enjoy today’s gains without gambling tomorrow’s security. 

Takeaways 

• Even during strong bull markets, the sequence of returns risk can quietly undermine retirement income sustainability. 
• Early negative years have a far greater impact than later downturns, even when average returns are the same. 
• Time-segmented portfolios, flexible withdrawals, and income guarantees can help mitigate timing risk. 
• Advisor-led modeling helps clients stay realistic amid market optimism.