# Sequence-of-returns risk

> Sequence-of-returns risk is the danger that poor investment returns early in retirement, while you are withdrawing money, permanently shorten how long your savings last, even if average returns over the whole period are fine.

Canonical page: https://find.wellspent.co/glossary/sequence-of-returns-risk/
Also called: sequence risk, sequence of returns

Two retirees can earn the same average return over 30 years and end up in very different places. If the losses come first, withdrawals force sales at low prices and leave fewer shares to recover. If the same losses come late, the portfolio has already grown.

William Bengen's 1994 study of US market history shows it clearly. With a 5% starting withdrawal on a half-stock, half-bond portfolio, retirements that began in the late 1960s and early 1970s, just before high inflation and the 1973 to 1974 bear market, lasted only about 20 years. The same withdrawal lasted 50 years from many other start dates.

Ways to reduce it include holding a few years of spending in cash or bonds, cutting withdrawals after a bad year, and covering basic expenses with guaranteed income such as Social Security, a pension, or an annuity.

## How to check

Ask an advisor to show how your plan holds up if markets fall sharply in the first two years of retirement, not only under average returns.

## Sources

- [Bengen, "Determining Withdrawal Rates Using Historical Data," Journal of Financial Planning, Oct. 1994 (FPA reprint)](https://www.financialplanningassociation.org/sites/default/files/2021-04/MAR04%20Determining%20Withdrawal%20Rates%20Using%20Historical%20Data.pdf)
- [Investor.gov: Managing lifetime income](https://www.investor.gov/additional-resources/retirement-toolkit/managing-lifetime-income)

## Related terms

- [Safe withdrawal rate](https://find.wellspent.co/glossary/safe-withdrawal-rate.md)
- [Monte Carlo analysis](https://find.wellspent.co/glossary/monte-carlo-analysis.md)
- [Annuity](https://find.wellspent.co/glossary/annuity.md)
- [Rebalancing](https://find.wellspent.co/glossary/rebalancing.md)