5 Key Strategies to Protect Your Retirement from Sequence of Returns Risk

Timing is Everything When It Comes to Retirement Planning.

You’ve probably heard the saying “timing is everything.” When it comes to retirement planning, this couldn’t be more accurate, especially due to something called sequence of returns risk. This isn’t just financial jargon — it can have a real impact on whether your money lasts through retirement.

Let’s explore what sequence of returns risk is and the five key strategies you can use to mitigate it.

What is Sequence of Returns Risk?

Sequence of returns risk refers to the order in which your investment gains and losses occur. While the average return over time might seem reasonable, the timing of those returns — especially in the years immediately before and after you retire (the “fragile decade”) — can significantly affect how long your retirement savings last.

Example:Imagine two retirees, both starting with a $1 million portfolio and withdrawing $40,000 annually. After just five years, one might have $1.1 million, while the other could be left with only $810,000 — a $350,000 difference — all due to the sequence of market returns.

5 Strategies to Manage Sequence of Returns Risk

1. Diversification

   Don’t put all your eggs in one basket. Diversify your investments across different asset classes to spread risk. This includes:

   • A mix of stocks (e.g., value stocks).

   • Bonds (e.g., Treasury Inflation-Protected Securities or TIPS).

   • Other assets like real estate or commodities.

   Diversification helps stabilize returns and reduces the impact of market downturns.'

2. Dynamic Spending

   Be flexible with how much you withdraw each year based on market performance:

   • In good years, you can withdraw a little more.

   • In bad years, reduce withdrawals slightly to preserve your capital.

   This approach can help your savings last longer by avoiding significant withdrawals during market downturns.

3. Guaranteed Income Streams

   Consider products like annuities that offer a steady, predictable income regardless of market conditions. These provide peace of mind by covering essential expenses, particularly during the fragile decade when your portfolio is most vulnerable.

4. Maintain a Cash Buffer

   Keep a cash reserve to cover 2-3 years of living expenses. This buffer allows you to:

   • Avoid selling investments at a loss during market downturns.

   • Ride out market volatility without impacting your long-term financial plan.

5. Adjust Your Asset Allocation

   As you approach retirement, gradually shift to a more conservative investment mix. Reduce exposure to high-risk assets and increase holdings in stable, low-volatility options. This helps protect your portfolio from large swings during critical retirement years.

   
   

Final Thoughts

Retirement planning isn’t a “set it and forget it” process. Being aware of sequence of returns risk and using these five strategies can help ensure your nest egg lasts as long as you do.

By staying engaged and adapting your plan, you can build a retirement that’s secure, flexible, and tailored to your goals.

✅ Talk to John White

Are you ready to get your financial house in order? Schedule a call with John White today! With over 30 years of experience helping families navigate the complexities of financial planning, John brings a wealth of knowledge and genuine care to every consultation. 

At Financial Guideposts, we are passionate about guiding you to where you need to be to ensure you and your family live your best, most stress-free life. Our mission is to keep your family financially protected, no matter what happens. Let us help you achieve peace of mind and financial security. Schedule your call with John White now and take the first step toward a brighter financial future.