April 28th, 2026 — When planning for retirement, many individuals focus on long-term investment returns and overall account balances. But a common concern often comes up: what happens if the market declines right when you retire?
While long-term averages can be helpful, the timing of market performance during retirement years can also influence how your income strategy holds up over time¹.
What Is Sequence of Returns Risk in Retirement?
One of the lesser-known concepts in retirement planning is sequence of returns risk — the idea that the order of market gains and losses may affect your portfolio once withdrawals begin¹.
During your working years, market fluctuations may feel less impactful because you are continuing to contribute. In retirement, the situation changes. Withdrawals begin, and market timing can start to play a more noticeable role.
Two individuals with similar average returns may experience different outcomes depending on when those returns occur.
Why Timing Matters Alongside Average Returns
It’s often assumed that if the market averages a certain return over time, the outcome will be similar for everyone. In reality, the timing of those returns can create different results.
If market declines occur early in retirement while withdrawals are being taken, a portfolio may have fewer assets available to recover. On the other hand, stronger returns earlier in retirement may place a portfolio in a different position moving forward.
Even when long-term averages appear consistent, the sequence of returns can influence how retirement income strategies perform².
What Happens If the Market Drops When You Retire?
Retiring during a market downturn is a concern for many people. When withdrawals are taken during periods of market decline, it may require selling investments at lower values³.
At the same time, assets that are withdrawn are no longer invested, which may reduce the ability to participate in future market recoveries.
Over time, this combination can influence how long a portfolio may support income needs, depending on individual circumstances and withdrawal strategies.
How Withdrawals Can Affect Long-Term Outcomes
Once withdrawals begin, they interact with market performance in ways that differ from the accumulation phase:
Selling assets during down markets may reduce portfolio value
Withdrawn funds are no longer able to grow over time
Early losses combined with withdrawals may have a compounding effect¹
A Simple Example
Consider two retirees with similar portfolios and identical average returns over time:
One experiences stronger market performance early in retirement and weaker performance later
The other experiences weaker performance early and stronger performance later
Approaches That May Help Address Market Timing Risk
While market performance cannot be predicted, there are ways to structure a plan that may help reduce the impact of timing:
Diversifying income sources to avoid relying on a single account
Maintaining a portion of assets in more stable or liquid options for near-term need
Balancing growth-focused investments with income-oriented strategies
- Reviewing withdrawal strategies periodically to reflect current conditions
Why This Risk Is Often Overlooked
Many retirement strategies are built around long-term projections and average returns. While these are useful tools, they may not fully reflect how market timing can affect real-world outcomes.
Understanding how withdrawals, market performance, and timing interact can provide a more complete view of retirement planning.
Next Steps
Market timing is one of several factors that may influence retirement outcomes. Understanding how it fits into your overall strategy can help you make more informed decisions.
If it has been some time since you reviewed your plan, it may be helpful to evaluate how your current approach aligns with your income needs and long-term goals.
Our team is here to help you take a closer look and explore strategies that support your financial confidence over time.
Sources
¹ Pfau, Wade D. Sequence of Returns Risk and Retirement Income. Journal of Financial Planning, Financial Planning Association,
https://www.financialplanningassociation.org/article/journal/JAN13-sequence-returns-risk.
² Vanguard Group. Fuel for the Fading Flame: Keeping Your Retirement Portfolio Alive. Vanguard Research,
https://corporate.vanguard.com/content/corporatesite/us/en/corp/articles/fuel-for-the-fading-flame.html.
³ U.S. Securities and Exchange Commission. Saving and Investing for Retirement: What You Need to Know. Investor.gov,
https://www.investor.gov/introduction-investing/investing-basics/glossary/sequence-returns-risk.