There’s a lot to think about when planning for retirement—how much to save, when to start drawing income, and how to invest for both growth and stability. But one risk often flies under the radar: sequence risk.

What is Sequence Risk?

Sequence risk refers to the chance of facing negative market returns early in retirement—right when you start withdrawing from your investments. That early timing can have a major impact on how long your money lasts, even if your average return over time is solid.

Let’s say you and a friend retire with the same investment amount, withdraw the same amount each year, and earn the same average returns over 25 years. If one of you experiences market losses in the first couple of years and the other sees gains instead, your outcomes could look drastically different—even with identical averages. That’s sequence risk at work.

Why It Matters

During your working years, you’re mostly putting money into the market. When prices drop, it can actually be a good thing—you’re buying investments at lower prices and benefiting when markets recover.

But in retirement, you’re withdrawing funds. So if you hit a market dip early on, you might need to sell investments at low prices just to meet your income needs. That leaves you with fewer shares to benefit from a rebound—reducing your portfolio’s ability to recover and grow over time.

A Quick Illustration

Imagine two retirees—Joan and Jane.

• Both retire at 65 with $1 million in stocks.
• Both withdraw $50,000 per year.
• Both average 7% annual returns over 25 years.

But Joan starts retirement in a bear market, facing –30% and –20% returns in her first two years. Jane, on the other hand, sees steady growth from the beginning.

Even though they both end up with the same long-term average return, Joan’s portfolio drops to about $150,000 by year 25. Jane? Hers grows to around $2 million.

If they hadn’t made any withdrawals at all, both portfolios would have ended up around $5.4 million—showing just how impactful early market losses can be when you’re drawing income.

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How to Manage Sequence Risk

The good news is, you can plan for sequence risk without overhauling your investment strategy. Here are a few ways to soften the impact:

Keep Working (If You Can)

Even part-time work during the first few years of retirement can help. It gives your portfolio more time to recover before you start drawing from it—and if you’re able to keep contributing, even better.

Spend Less (At First)

If markets are down early in retirement, consider reducing your withdrawal rate temporarily. Spending less during a downturn gives your investments more time to recover and can significantly improve long-term outcomes.

Use Other Assets

You may have more than just your investment accounts to pull from—such as cash savings, bonds, annuities, or even home equity. Tapping these assets during a market dip can help you avoid selling stocks at a loss.

Stick With Your Plan

No one can predict short-term market moves. That’s why we continue to recommend maintaining a diversified portfolio aligned with your long-term goals—not one that reacts to headlines or temporary volatility.

Work With a Fiduciary Advisor

Sequence risk is just one piece of the retirement puzzle. Taxes, healthcare costs, estate plans, and evolving lifestyle needs all play a role too. An experienced advisor can help you coordinate all the moving parts of your plan.

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At Navalign Wealth Partners, we help clients build retirement strategies that are designed to weather the ups and downs—including the unpredictable timing of market returns.

If you’d like help preparing for a confident retirement, we’d love to talk.