Experiencing market volatility early in retirement can be a very unsettling experience for a new retiree, and may raise the legitimate concern of whether early early market declines combined with portfolio withdrawals can jeopardize a retirement plan.

In fact, the risk – more formally known as “sequence of returns” – is real.

The chart below shows two hypothetical retirees experiencing the same portfolio returns over a ten-year period, but in reverse order.

They each start with a portfolio value of $1 million, each earn an average return of 6% per year over the ten-year period, and withdraw $60,000 per year for income in retirement (adjusted for inflation each year by 3%).

Mr. Purple is lucky, and experiences good market returns early in retirement. Mr. Green, though, is unlucky, and experiences bad market returns early on. After 10 years, Mr. Purple has almost all of his original principal left, while Mr. Green has only about 40% of his initial investment.


With millions of Baby Boomers reaching retirement age every year, academics and researchers have been studying the challenges posed by sequence of returns risk for investors.

The results to date seem to suggest that a bear market that recovers fairly quickly (like 2000-02 or 2008-09) is less of a problem than the prospect of a decade of simply “mediocre” returns, because with the latter, portfolio assets are consumed over an extended period, waiting for the “better than average” returns to arrive.

So what’s an investor to do?

First, recognize that in the decade prior to retirement, it’s the volatility of the portfolio’s returns that matter. This because the savings contributions are no longer the primary factor for growth – as the portfolio compounds, additional contributions matter less and less.

We believe that investors and advisors should ensure that the initial portfolio withdrawal rate is appropriate to begin with, and then manage the portfolio’s asset allocation dynamically throughout retirement. This may mean reducing portfolio risk (and therefore expected return), which in turn might require saving more, working longer, reducing planned portfolio withdrawals, or some combination of these responses.