Sequence of Returns Risk: How Order of Gains and Losses Can Make or Break Your Retirement

When you start pulling money out of your retirement account, the sequence of returns risk, the danger that the order of your investment gains and losses in early retirement will permanently damage your portfolio becomes more important than your average return. It doesn’t matter if your portfolio earns 6% a year over 30 years—if the first five years lose 20%, you might never recover. This isn’t theoretical. A 2008 study by William Bengen showed that retirees who started withdrawing in 1966, right before a decade of poor markets, ran out of money 30 years later—while those who started in 1968, after a crash, made it through just fine, even with identical average returns.

This risk hits hardest when you’re taking income from your portfolio, not just saving. That’s why bond ladders, a strategy that spreads bond maturities over time to create predictable income and cash management accounts, high-yield, safe places to hold emergency cash outside the market matter so much. If you’ve got three years of living expenses in stable, liquid assets, you don’t have to sell stocks when they’re down. You wait. You let the market heal. You avoid locking in losses. That’s the difference between running out of money and sleeping well.

It also explains why target-date fund glide paths, the automatic shift from stocks to bonds as you near retirement can be too aggressive—or not aggressive enough. Many glide paths drop you into bonds too early, cutting your growth potential. Others wait too long, leaving you exposed right when you need safety the most. The right path doesn’t just reduce risk—it protects you from the worst timing in the market.

And here’s the thing: sequence of returns risk isn’t just for retirees. If you’re planning to quit your job, downsize, or retire early, you’re already in the zone. Even if you’re 10 years out, how you structure your withdrawals matters. That’s why rebalancing with cash flows, using dividends and bond coupons to adjust your portfolio without selling is such a quiet superpower. It lets you buy low and sell high without touching your principal—or your nerves.

You won’t find a magic formula to beat this risk. But you can build systems that make it irrelevant. Keep cash ready. Keep bonds steady. Keep your emotions out of it. The posts below show you how real investors handle this—whether they’re using defensive investing, focusing on stable stocks and high-quality bonds during downturns, or managing fund turnover, how often a fund trades to avoid tax traps. You’ll see how people with $50K or $500K or $2M are protecting their future—not by guessing the market, but by designing around it.