The five years after · Retirement Transition Trap™
Sequence-of-returns risk
The same average return, in a different order, is a different retirement.
In short
Sequence-of-returns risk is the risk that the order of market returns, not just their average, determines how long a portfolio lasts. Two retirements with identical average returns can end very differently depending on when the bad years arrive.
How it works
While you are contributing, the order of returns barely matters. Market weakness is a discount: the money going in each month buys more, and time does the rest. Average return over the period is close to the whole story.
Once you are withdrawing, the order becomes the story. Every withdrawal in a falling market sells more units to raise the same amount of cash, and those units are permanently gone. They are not there to recover when the market does.
Why the first years carry the most weight
A poor run early in retirement does more lasting damage than the same run later, because it compounds against a portfolio that is also shrinking through withdrawals. The two effects reinforce each other.
The same poor run twenty years in lands on a portfolio that has had two decades to grow and has fewer years left to fund. Identical market conditions, very different consequence, which is why the transition window is where this risk is concentrated.
It is a planning problem, not a forecasting one
Nobody knows the order in advance. That is the point: the risk cannot be predicted away, only planned around. The work is testing what a plan does under a bad early sequence and deciding in advance what would change if one arrived.
That is what stress-testing a plan means, and it is why the comprehensive financial plan we present uses scenario modeling rather than a single projection.
This page explains a mechanism. It is not investment, tax or legal advice, and it deliberately quotes no thresholds, ages or rates. Those are set annually, and a page that named them would be out of date within a year.
Check where you stand
Ten questions, about two minutes
The readiness checklist covers this and nine other checkpoints, and tells you which you have already handled. No contact details required.
Where does this sit in your plan?
Fifteen minutes on the phone about your own situation, which is the part this page can’t tell you.