How to Protect Your Savings

Admin 6 min read

There’s a specific kind of dread that comes with watching the market drop right after you retire. It’s called sequence of returns risk, and understanding it now can save you from a rough surprise later. The danger is simple. A bad market in your first few retirement years does more damage than the same market would ten years later. You’re pulling money from a portfolio that’s already down, and those losses lock in before the market has room to recover.

Two retirees can earn the same returns over 15 years and still end up tens of thousands of dollars apart. Once you see how the order behind those numbers works, you can build a plan around it.

What Is Sequence of Returns Risk?

Sequence of returns risk means when your losses happen can hurt you as much as the losses themselves. You’ll also see it called sequence risk or portfolio timing risk. Same idea under a different name: the order your returns arrive in matters as much as the average.

Say you pull money from your retirement accounts every year to cover expenses. A drop early in your withdrawal years puts you in a tougher spot than a retiree who hits that same decline a decade later. You’re selling shares at a discount to cover your bills, and there’s less money left to ride the recovery once it comes.

Even after the market bounces back, the withdrawals you made during the downturn are gone. Your account never gets the full benefit of the recovery, because less of it stayed invested to catch the rebound. It’s the part of retirement math nobody warns you about, and it can catch even careful savers off guard.

Why Early Retirement Losses Hurt More Than Later Ones

When a loss happens changes how much it costs you. Realizing a loss in year one costs more than the same loss twenty years in, even though the dollar amount doesn’t change.

A big drop right when you retire can feel like proof you did something wrong, but you didn’t. It’s just what the calendar looked like when the market happened to turn.

Markets move in cycles, some bull, some bear, and each one can run from a year to a decade or more. No one can predict which years will be good and which will be bad. Where those bad years fall in your timeline is what decides the cost.

The Same Average Return, Two Very Different Outcomes

Even if performance averages out the same, two retirees can end up in very different places. The only real variable is whether the losses came early or late.

Picture two of them, each starting with $100,000 and withdrawing $5,000 at the end of each year. Both see the same 15 years of returns, in a different order for each.

Retiree A gets the strong years first: double-digit gains right out of the gate, then a run of losses near the end. Retiree B gets the same 15 numbers, just flipped. The rough years hit before the good ones ever show up.

Year	Retiree A’s Return	Retiree A’s Balance	Retiree B’s Return	Retiree B’s Balance
Start		$100,000		$100,000
1	12%	$107,000	-8%	$87,000
2	15%	$118,050	-7%	$75,910
3	9%	$123,675	-6%	$66,355
4	11%	$132,279	-3%	$59,365
5	8%	$137,861	-2%	$53,177
6	10%	$146,647	3%	$49,773
7	7%	$151,912	5%	$47,261
8	6%	$156,027	6%	$45,097
9	5%	$158,828	7%	$43,254
10	3%	$158,593	10%	$42,579
11	-2%	$150,421	8%	$40,986
12	-3%	$140,909	11%	$40,494
13	-6%	$127,454	9%	$39,139
14	-7%	$113,533	15%	$40,009
15	-8%	$99,450	12%	$39,810

Note: These are hypothetical returns for illustration, with withdrawals taken at the end of each year. They aren’t drawn from an actual historical market period.

After 15 years, Retiree A ends up with $99,450. Retiree B ends up with $39,810. Same withdrawals, same 15 years, but a gap of nearly $60,000. It’s purely the sequence.

How to Protect Your Retirement from Sequence of Returns Risk

A cash buffer, flexible withdrawals, and the right allocation can all soften what a bad sequence does to your plan, and none of them require predicting when the market will turn. You’re not powerless here, and that matters more than it might feel like right now.

If you haven’t nailed down your withdrawal rate or mapped out a drawdown strategy yet, this is exactly the kind of risk that groundwork protects you from.

Keep one to three years of expenses in cash

Set aside enough cash to cover one to three years of living expenses. If the market drops early in retirement, you can draw from that cushion instead of turning a temporary drop into a permanent loss, buying yourself room to breathe.

Look for other income when cash runs short

If your buffer runs low and your investments are still down, get resourceful before you’re forced to sell at a loss. A part-time retirement job can cover more ground than you’d expect, and a few passive income ideas might surprise you too. If things get tight before either kicks in, a look at emergency money options or a plan for cutting housing costs can buy you time without touching your investments.

Rebalance and manage your asset allocation

Balance your portfolio between safer and riskier holdings, and revisit that mix as conditions shift. Moving money out of volatile positions and into steadier ground when prices are falling limits how much you’re forced to unload at the bottom.

This is one of the pieces you control, even when the market won’t cooperate. Which account you pull that money from matters too, since taxable, traditional, and Roth accounts each carry their own tax consequences.

Stay flexible with how much you withdraw

Many retirees plan to withdraw a fixed percentage every year, no matter what the market’s doing. A flexible approach works better. Take more when stocks are up and inflation’s low, and ease back when the market dips and prices climb. That flexibility does more for your plan than any fixed number ever could.

Cover essential costs with guaranteed income

An annuity bought early in retirement can guarantee income that never depends on market timing. It won’t fit every plan, but if a bad sequence is what keeps you up at night, the tradeoffs of annuities deserve a look against that peace of mind.

Build a plan you can monitor over time

Testing your own sequence risk means running different market orders against your specific withdrawal plan, math that’s tough to do by hand. The Boldin Planner runs those scenarios against your real numbers, so you can see how a rough start to retirement would affect your own plan. Seeing it mapped out tends to replace a lot of guesswork, and worry, with an actual answer.

None of these moves erase market risk. Together, they take a lot of the fear out of not knowing what a bad year would do to your plan.

What Does the Research Say About Sequence of Returns Risk?

Financial planner William Bengen built his original 4% withdrawal rule around the worst historical return sequences he could find. Retirement researcher Michael Kitces has written at length about how the first decade of retirement, more than the full 30 years, tends to decide whether a portfolio survives.

The core idea lines up with how FINRA describes the relationship between risk and return. Investments with the strongest long-term potential also carry the most volatility along the way. That volatility is what creates sequence risk for anyone withdrawing income while markets swing.

The people who study this take it seriously enough to build entire models around it. Your own plan deserves that same attention.