One of the most common concerns I hear from people approaching retirement is what happens if the market drops right after they stop working. It is a fair concern and in many ways one of the biggest risks retirees face. After spending decades building savings, the idea of stepping into retirement just as the market declines can feel like the worst possible timing.
I was sitting with a client recently who asked me this exact question. They had done everything right. They saved consistently, built a strong portfolio, and were ready to retire. But there was still that lingering worry in the back of their mind. What if they retired at the wrong time?
To walk through it, I shared a simple example. Imagine two retirees who start with the same $100,000 portfolio and withdraw $8,000 per year. Over time, they even experience nearly the same average return.
But the outcomes are very different.
One retires during a stretch where the market struggles early on. The other retires just a decade later, when the early years are much stronger. Even though the long-term average return is nearly the same, one portfolio is nearly depleted while the other continues to grow.
This is what we call sequence of returns risk. It is not just about how much the market returns. It is about when those returns happen, especially when you are taking income from your portfolio.
When clients see this, it usually changes how they think about retirement. It becomes less about chasing returns and more about building a plan that can handle different market environments.
One of the most effective ways to manage this is to structure your portfolio by time horizon. Instead of viewing everything as one large pool, we break it into segments.
Funds needed in the next 1 to 2 years are held in more stable accounts to avoid short-term market swings. Money needed in the intermediate term is invested more conservatively, often in bonds or other income-producing investments. The portion intended for the long term remains invested in growth-oriented assets, allowing it to recover and continue compounding.
This structure creates a buffer. If the market drops early in retirement, you are not forced to sell investments at lower values. Instead, you are drawing on the portion of your plan designed to support you during that time.
Flexibility is also important. Retirement income does not have to be fixed. In years where the market is struggling, making small adjustments to spending or withdrawals can have a meaningful impact on the longevity of your plan.
There are also opportunities that can come from down markets. In some cases, we may look at strategies like Roth conversions when account values are lower or being more intentional about which accounts we draw from to manage taxes more efficiently.
Market downturns are a normal part of investing. While they can feel uncomfortable, they have historically been temporary. A well-thought-out plan is built with this in mind and is designed to handle periods of volatility.
The goal is not to avoid risk entirely. The goal is to manage it in a way that supports a steady and sustainable income throughout retirement. And when that plan is in place, the conversation often shifts from worrying about what could happen to feeling confident in how you are prepared to handle it.
Ready to see if your retirement strategy is built to weather sequence-of-returns risk? Don't leave your timing to chance. Reach out to our team here,