Two retirees can invest the same amount, earn the same average return—but end up with completely different outcomes.
The difference? When the market goes bad.
It’s called sequence of returns risk, and it’s one of the most overlooked challenges in retirement planning. The idea is simple: when you’re withdrawing from your portfolio, the order of your investment returns matters just as much as the returns themselves. If markets fall early in retirement—while you’re taking withdrawals—each dollar you pull out locks in losses and leaves less capital to recover when markets rebound. Over time, that can dramatically shorten how long your money lasts, even if long-term performance looks solid on paper.
Consider two retirees, both starting with $1 million and withdrawing $50,000 per year (adjusted for inflation). Both average 6% annual returns over 20 years.
- Investor A enjoys strong markets early, earning +10%, +12%, +8% in the first few years before later downturns.
- Investor B faces the reverse, losing −10%, −12%, and −8% right out of the gate before later recovery.
Even though their averages are identical, the outcomes aren’t.
After 20 years, Investor A still has roughly $900,000 remaining.
Investor B is nearly out of money.
Why? Because early losses, combined with withdrawals, shrink the base that future gains can compound on. Each down year early on is like digging a deeper hole to climb out of.
The good news is that sequence risk isn’t something you have to predict; it’s something you can plan for.
At Hanover, we help clients design flexibility into their retirement income strategy: maintaining a cash reserve for down years, diversifying tax buckets to control income sources, and building adaptable withdrawal plans that can bend without breaking.
The first five years of retirement are often the most critical. Markets will always fluctuate, but your plan doesn’t have to. A resilient withdrawal strategy turns short-term uncertainty into long-term confidence.
If you’re within five years of retirement, now is the time to stress-test your income plan against sequence risk. Because while no one can control the market’s timing, you can control how ready you are for it.