Why the Timing of Returns Matters After You Retire

While you are working and contributing to retirement accounts, a market decline may be uncomfortable—but continued contributions can buy more shares at lower prices. Retirement changes that equation. Once regular withdrawals begin, selling investments during a decline can leave fewer assets available to participate in a later recovery.

This is commonly called sequence-of-returns risk. The issue is not simply what the market averages over many years. It is the order in which gains, losses, and withdrawals occur—especially early in retirement.

A simple way to understand the risk

Imagine two retirees who begin with the same savings, withdraw the same amount, and experience the same series of annual returns. One encounters the strongest years first; the other encounters the weakest years first. Because money is being removed along the way, reversing the order can produce a very different ending balance.

Why the early years deserve attention

A decline early in retirement can create a double pressure: the account loses value while withdrawals continue to fund living expenses. If too much must be sold at depressed prices, the remaining portfolio may have a harder time recovering even when markets improve.

This does not mean every retiree should avoid market investments. It means the retirement-income plan should recognize that essential expenses do not pause when markets become volatile.

Questions that can strengthen the conversation

• Income gap: After Social Security, pensions, and other dependable sources, how much must the portfolio provide each month?
• Near-term liquidity: Which resources could cover planned spending without forcing a sale during a market decline?
• Flexible spending: Which expenses could be temporarily reduced if conditions change?
• Income layers: Which needs require greater predictability, and which goals can tolerate fluctuation?
• Review process: How often will withdrawals, taxes, inflation, and portfolio risk be reassessed?

Dependable income changes the conversation

When a portion of essential expenses is covered by dependable income sources, a retiree may have more flexibility in deciding when to draw from market-based assets. That does not eliminate risk, but it can help separate immediate spending needs from longer-term growth decisions.

The goal is not to predict every market movement. It is to understand how your plan may respond when markets, expenses, or income needs do not follow the expected path.

Your next retirement-income question

Ask: “If markets decline during my first few years of retirement, which income sources would I use, and what would I change?” A clear answer can reveal whether your strategy is prepared for more than an average-year illustration.