Two retirees can earn the exact same average annual return over 30 years and end up with wildly different outcomes — one runs out of money, the other doesn’t — purely because of when the good and bad years happened relative to when they started withdrawing.
Why Averages Lie Once You’re Withdrawing
While you’re still working and adding to your portfolio, a market crash early in your career barely matters — you have decades to recover and you’re buying more shares while they’re cheap. Once you’re withdrawing a fixed dollar amount every year, that same crash forces you to sell a larger share of a smaller portfolio just to cover expenses, permanently reducing the shares available to participate in the eventual recovery. The math stops being symmetrical the moment withdrawals start.
The “Fragile Decade”
The highest-risk window spans roughly the five years before retirement through the first five to ten years after it. This is when your portfolio balance is largest relative to your withdrawals, so a downturn does the most permanent dollar damage. A bad market in year 25 of a 30-year retirement barely registers by comparison — the portfolio is smaller and there’s less time left for compounding losses to matter.
A Concrete Illustration
Picture two retirees, each starting with $1,000,000 and withdrawing $40,000 a year, adjusted for inflation. Both earn the same 7% average annual return over 30 years. Retiree A hits a 20% market decline in year one. Retiree B hits that same 20% decline in year 25. Retiree A’s portfolio, permanently smaller after selling into the down year while still needing full withdrawals, can run out of money years before Retiree B’s — despite identical long-run average returns. The order of returns, not just their average, determines survival.
Real Ways to Defend Against It
Financial planning research groups the practical defenses into three categories: maintaining a genuinely conservative withdrawal rate in the early years rather than a rate that only works in average-return scenarios, holding a cash or bond buffer specifically to avoid selling stocks during a downturn (the mechanism behind the bucket strategy), and dynamic spending — actually cutting discretionary withdrawals in a bad year rather than mechanically taking the same inflation-adjusted amount regardless of market conditions.
A Counterintuitive Finding: The Rising Equity Glide Path
Conventional wisdom says to steadily reduce stock allocation as you age. Research from planning researchers Michael Kitces and Wade Pfau found that a rising equity glide path — starting retirement with a lower stock allocation and gradually increasing it over the following 15 years — actually produces better outcomes in bad-sequence scenarios than the traditional declining-equity approach, precisely because it reduces stock exposure during the fragile early years when a crash does the most damage.
The Bottom Line
Sequence-of-returns risk means the years immediately around your retirement date deserve more conservative positioning and a real cash buffer than a simple “average return over 30 years” projection would suggest — not because the market is riskier then, but because you have zero ability to wait out a downturn once fixed withdrawals begin.
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