When people think about retirement planning, they often focus on average returns. If a portfolio has historically averaged 6% or 7% per year, that sounds like a solid long-term outcome. But in retirement, the timing of returns can matter just as much than the average itself.

This concept is called sequence of returns risk, and it can have a meaningful impact on how long retirement savings last.

What Sequence Risk Really Means

In simple terms, sequence risk refers to the order in which market gains and losses happen. If you are still working and contributing to your retirement accounts, market downturns can be uncomfortable, but you’re typically adding money during those periods. Over time, markets have historically recovered, and continued contributions may help smooth out volatility.

Retirement changes that dynamic. Once you begin withdrawing income from your portfolio, market losses early in retirement can have a greater impact. If you need to take withdrawals during a downturn, you may be selling investments when prices are lower. That reduces the amount of money left in the portfolio to recover when markets improve.

Two retirees could earn the same average return over 20 years and still have very different outcomes, simply because one experienced losses in the early years while the other did not.

Why the First Years of Retirement Matter Most

The first several years of retirement are often the most sensitive. During this period, your portfolio shifts from growing through contributions to supporting regular withdrawals.

If markets decline early and withdrawals continue, the portfolio may shrink faster than anticipated. Even if markets later rebound, the reduced asset base may limit how much benefit you receive from that recovery.

This does not mean investors should avoid the market. It means retirement income planning deserves careful attention.

Practical Ways to Help Manage Risk

There is no way to eliminate market risk entirely. However, thoughtful planning may help reduce the impact of sequence risk.

Cash Reserves: One approach is maintaining a cash reserve to cover near-term spending needs. Having funds set aside for one or more years of expected withdrawals may reduce the need to sell longer-term investments during volatile periods.

Portfolio Management: Another strategy is structuring assets in your investment portfolio based on time horizon. For example, more conservative holdings may support short-term income needs, while longer-term assets remain positioned for growth.

Diversify Income: Diversifying income sources can also play a role. Coordinating withdrawals with Social Security, pensions, or other income streams may provide flexibility during market downturns.

Every situation is different, and strategies should be tailored to individual goals, tax considerations, and risk tolerance.

The Value of Adapting Your Retiree Plan

Market headlines can create anxiety, particularly for retirees who depend on their portfolios for income. A clearly defined withdrawal strategy can help reduce emotional decision-making during uncertain times.

At Mirus Financial Partners, we focus on building disciplined, long-term plans designed to support income needs through varying market conditions. Understanding sequence of returns risk is one part of a comprehensive retirement strategy, one that prioritizes stability, clarity, and thoughtful decision-making over chasing performance. Contact us today to get started.

This material is provided for informational purposes only and is not intended as investment advice. All investing involves risk, including the possible loss of principal. Past performance does not guarantee future results. Investors should consult with a qualified financial professional regarding their specific circumstances.