In planning for retirement income, “sequence-of-returns risk” is often cited as a key threat to portfolio sustainability. The concern is that poor market results early in retirement can derail even a well-constructed portfolio. While market volatility is important, this framing may overlook a more critical factor: how and when retirees withdraw funds from their portfolios. Once retirees begin withdrawals, the timing of returns becomes critical when paired with rigid withdrawal behavior, especially during downturns, which can lock in losses and impair recovery.
January 6, 2026
Defining the real risk
For many retirees, managing retirement income risk begins with market results and minimizing the impact of poor returns early in retirement. But markets are inherently uncertain and difficult to forecast. The more relevant and controllable question is how retirees respond to those market conditions through their withdrawal behavior. The real risk lies not in the “sequence of returns,” but in the “sequence of withdrawals” that follows.
Consider the “tale of two retirees” chart, which illustrates how two individuals with identical portfolios and identical average returns can have a very different outcome depending on when they start withdrawing funds. When retirees withdraw a fixed, inflation-adjusted amount regardless of market conditions, early losses can shrink the portfolio base, making recovery harder and permanently compromising its long-term sustainability.
The sequence of returns can dramatically impact outcomes
Withdrawals can cause a portfolio to have lower, even negative annual returns
*Chronological order returns start from a point where the market declined initially but rose toward the end of the period, and reverse order returns start with the rising returns and end with the market decline.
Source: Capital Group, S&P Dow Jones Indices LLC. Returns based on a hypothetical $500,000 initial investment in the S&P 500 Index on December 31, 2000, through December 31, 2024, assuming monthly withdrawals of 4% of the initial investment the first year, or $20,000, and increasing 3% each year thereafter. Returns shown in reverse order are hypothetical and for illustrative purposes only. The S&P 500 is a market capitalization-weighted index based on the results of approximately 500 widely held common stocks. The market index is unmanaged and, therefore, has no expenses. Investors cannot invest directly in an index.
The real risk is in withdrawals, not returns. In the absence of withdrawals, the order of returns is mathematically irrelevant because gains and losses compound over time, and the final value depends solely on the average return. But once withdrawals begin, the sequence becomes critical. Still, financial math only tells part of the story — client behavior, spending patterns and goals are also part of the equation.
Clients may perceive the risk differently
Our research shows that retirees rarely frame this risk in market terms. Instead, their anxiety centers on the emotional side of spending itself. According to our research, investors consistently view market volatility as less of a concern than other risks like inflation; changes to entitlement programs, taxes or interest rates; and long-term care.
Reflecting these concerns, fewer than half of investors are comfortable moving from saving to spending, while one in four admit they are explicitly uncomfortable with the transition. Meanwhile, the most common concern among pre-retirees is whether their money will last.
Retirees want to feel secure, but watching balances decline, even when part of a planned strategy, can trigger the fear of running out or spending too quickly. Indeed, we found that some retirees see the transition from saving to spending mindset as practical but also emotionally challenging.
Acknowledging this fear is essential. Reframing the conversation to focus less on predicting markets and more around withdrawal flexibility can help bridge the gap between financial logic and emotional comfort. It’s ultimately about managing behavior.
Empower clients to spend
Helping clients manage retirement risks — like the sequence of withdrawals — isn’t just about markets; it’s about mindset. By reframing challenges as areas clients can control, like spending, and acknowledging emotional realities such as hesitation to spend or fear of depletion, we build trust and deliver more meaningful outcomes.
Shift the conversation from whether the market will hold up to how to adjust if it doesn’t. Focus less on results in retirement and more on incorporating adaptable spending strategies. Emphasize that flexibility is what helps sustain income over time.
Acknowledge spending anxiety early. Normalize their discomfort. Say things like “You are not alone; many retirees find it hard to switch from saving to spending.” Use this moment to introduce the idea of guardrails with protected sources of lifetime income, such as a variable annuity, or bucketing to establish a mental accounting framework.
Frame withdrawals as a living plan. Remind clients that retirement income is not set in stone: It’s a process, not a one-time decision or a fixed solution. Show clients how small, proactive adjustments over time (like reducing spending in a down market) can help minimize drastic changes later.
The most powerful thing we can give clients isn’t just a plan. It’s permission. Permission to spend. Permission to adjust. And most important, permission to enjoy the retirement they worked hard to build.
Kate Beattie is a senior retirement income strategist with 18 years of experience in the industry as of 12/31/2024. She holds a bachelor’s degree in economics with a business administration minor from Colorado State University. She also holds the Certified Financial Planner™ and Retirement Income Certified Professional® designations.