Sequence of Returns Risk
RetirementGlossary term
Definition
The danger that poor investment returns early in retirement can permanently deplete a portfolio, even if average returns over time are adequate. Withdrawing from a declining portfolio locks in losses and leaves less money to benefit from future recoveries.
Related terms
- Safe Withdrawal RateThe percentage of a retirement portfolio that can be withdrawn annually with minimal risk of running out of money. The commonly cited 4% rule suggests withdrawing 4% in the first year and adjusting for inflation each year after.
- Bucket StrategyA retirement income strategy that divides savings into separate buckets based on time horizon: short-term (cash for 1-2 years), medium-term (bonds for 3-10 years), and long-term (stocks for 10+ years). Helps manage sequence of returns risk.
- Retirement IncomeMoney received during retirement from various sources including Social Security, pensions, retirement account withdrawals, annuities, and investment income. Planning for multiple income streams helps ensure financial security throughout retirement.
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