When people think about retirement success, they often focus on one central question: How are my investments performing?
That focus makes sense. Investments play an important role in building long-term security. But once retirement approaches — or income begins — there’s another factor that can quietly have just as much impact, and sometimes more: the order in which retirement income is taken.
This concept is known as Sequence of Return Risk. While the name may sound technical, the idea is often overlooked.
What Is Sequence of Return Risk?
Sequence of Return Risk refers to the impact that the timing of returns and withdrawals can have on a portfolio, particularly in the early years of retirement. Two people can earn the same average rate of return yet experience very different outcomes depending on when gains or losses occur and how income is withdrawn.
In simple terms, the order matters: when withdrawals are taken during down markets — especially from the wrong types of accounts — the effects can compound. Losses aren’t just felt on paper; they can reduce how long a portfolio lasts.
Why This Often Goes Unnoticed
For many households, retirement planning has historically centered on investments. Most people have someone watching their portfolio — an important piece of the picture. But retirement income introduces additional considerations that extend beyond investment performance alone.
Factors such as where income comes from, when it’s taken, and how it interacts with taxes often receive less attention. Most people were never taught how these pieces work together once income begins, and as a result, important opportunities for coordination can be missed.
It’s Not Just About Market Volatility
Sequence of Return Risk isn’t only about market swings. It’s also about how income is structured.
Withdrawals from tax-deferred accounts, taxable accounts, or Roth accounts can have very different tax consequences. In some cases, drawing income from the wrong account at the wrong time can unnecessarily increase taxes, reduce flexibility, or even affect whether Social Security benefits become taxable.
This doesn’t mean retirees need to avoid income or attempt to time markets. It simply means that intentional planning matters.
Why Awareness Changes Outcomes
The good news is that Sequence of Return Risk doesn’t require complicated formulas or constant monitoring. What it does require is awareness and intention through an approach coordinated between you and your advisor.
For those who haven’t yet begun taking retirement income, understanding this concept early can help establish a stronger foundation from the start. For those already drawing income, reviewing the sequence and sources of withdrawals can often reveal opportunities to improve efficiency and reduce unnecessary strain.
A More Coordinated View
Successful retirement planning isn’t just about investments. It’s about how income, taxes, timing, and long-term goals work together.
When these pieces are coordinated, retirees tend to experience greater confidence — not because markets are predictable, but because their strategy is thoughtful and adaptable.
Understanding concepts like Sequence of Return Risk helps shift the focus from reacting to short-term events toward building a plan designed to support income over the long term.
Keith Leverentz, NSSA®, is the founder of The Life Group, guiding clients since 2003 with personalized financial planning, investment counsel, and retirement strategies. Learn more and view upcoming financial seminars at TheLifeGroupllc.com.
Comments on this article can be sent to comments@juliensjournal.com.
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