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Sequence of Returns Risk: Timing Matters

When it comes to your retirement savings, many people focus on how much the

market returns overall. But here’s the truth: it’s not just about how much your

investments grow—it’s about when that growth happens. This is called the

sequence of returns risk, and it can have a big impact on how long your money

lasts in retirement.

What Is Sequence of Returns Risk?

Sequence of returns risk means that the order of market gains and losses can

affect how quickly you spend down your savings. Even if the market averages the

same return over time, getting bad returns early in retirement can hurt much more

than getting them later.

Why Timing Matters

Let’s look at two retirees, both starting with $500,000 and withdrawing $25,000

every year for living expenses. They both experience the same average return

over 10 years, but in different orders:

  • Retiree A starts with strong returns in the early years and experiences losses later.

  • Retiree B starts with losses in the early years and experiences gains later.

Why It’s Risky

Here’s why this matters: If the market drops right after you retire, you might end

up withdrawing money from a smaller balance. This leaves less in your account to

grow when the market eventually rebounds. Over time, this can add up to a big

shortfall. According to Fidelity, early losses in retirement can reduce how long

your savings last by several years1.

Final Thoughts

The order of market returns isn’t something you can control, but the way you plan

for it is. FIAs offer protection, stability, and a buffer against the risks that come

with bad timing in the market. By preparing now, you can make sure your

retirement savings last as long as you do.

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