Sequence-of-Returns Risk: Will You Retire at the Wrong Time?

The Retirement Risk You Can’t Control—But Can Plan For

Imagine this: you’ve just entered retirement, and after years of careful saving and investing, it’s finally time to begin withdrawing money from your portfolio. But right as you start living off those savings, the market takes a nosedive. Your portfolio drops in value—just as you’re starting to rely on it for income.

This isn’t just bad luck—it’s a real, measurable financial risk. And it has a name: sequence-of-returns risk.

At Lucia Capital Group, we believe understanding this concept—and how to protect yourself from it—is one of the most important parts of retirement planning.

What Is Sequence-of-Returns Risk?

Sequence-of-returns risk refers to the order in which investment returns occur, especially during the years when you’re withdrawing money from your portfolio.

Here’s the problem: if your portfolio suffers losses early in retirement, and you’re also making withdrawals, you’re reducing the number of assets available when the market eventually rebounds. Those early losses get “locked in,” and your portfolio may never fully recover.

Compare that to someone who experiences poor market performance later in retirement. The impact is often far less severe because their portfolio has already had time to grow—and they have fewer years of spending left.

Same average returns. Very different outcomes.

Why It Matters

For retirees, this risk can be financially lethal if left unmanaged. It’s not just about the value of your portfolio—it’s about how long your money will last.

And here’s the kicker: you can’t control when market downturns happen. No one can. But you can control how you respond.

What Not to Do

Let’s look at a few strategies that might sound good in theory, but aren’t ideal in practice.

❌ Option 1: Delay Your Retirement

Sure, you could try to keep working and delay your retirement until the market looks better. But in reality, this isn’t always an option. People are often forced into retirement earlier than expected due to layoffs, health issues, or burnout.

And even if you can delay, do you want to?

Retirement shouldn’t be about waiting for perfect market timing. It should be about having a plan that gives you confidence—no matter what the markets are doing.

❌ Option 2: Cut Your Income During Downturns

Another option is to simply take less money out during years when the market drops.

But this approach means letting the market dictate your lifestyle. Want to visit your grandkids? Pay your mortgage? Take a vacation? Sorry—markets are down. It’s a terrible way to live, and in our view, not a real plan.

A Better Approach: Build a Retirement Distribution Strategy

Instead of relying on hope or reacting to the market, you can set up a strategy in advance to help reduce your exposure to early-retirement risk.

One solution we use is called The Bucket Strategy®.

This strategy breaks your portfolio into three segments—each designed for a different time horizon:

🪣 Bucket 1: Short-Term, Non-Volatile Assets

This bucket contains 5 to 7 years’ worth of spending in stable, non-market-sensitive assets—think cash, short-term bonds, or fixed annuities.

During down markets, you draw from this bucket. It’s your safety net. It prevents you from selling stocks at a loss just to pay the bills.

🪣 Bucket 2: Mid-Term Assets

This bucket is for money you’ll need in about 5 to 10 years. It might include slightly more volatile assets like intermediate-term bonds or conservative investments with some growth potential.

It gives you balance: enough safety to provide a buffer, but with more return potential than Bucket 1.

🪣 Bucket 3: Long-Term Growth

This is your stock allocation—growth and value-oriented equities that are meant to sit untouched for at least 10 to 15 years.

Why? Because over long periods, the stock market has historically recovered from downturns. By giving these assets time, you reduce the risk of needing to sell at a loss.

Why This Works

The beauty of The Bucket Strategy is that it manages risk with time, not emotion.

When markets drop, instead of panicking or changing your plan, you draw from your safe buckets and let your long-term assets recover.

• No need to delay retirement

• No need to cut your income

• No need to time the market

This strategy turns retirement into a process—not a guessing game.

It’s Not About Retiring at the “Wrong Time”

A lot of people worry about retiring “at the wrong time”—but the issue isn’t when you retire. It’s how you set up your retirement income strategy.

Market drops will happen. Inflation will rise and fall. Interest rates will change. You can’t predict any of that—but with a smart withdrawal plan, you don’t have to.

Our goal is simple: to help your money outlive you.

Let’s Build Your Plan

At Lucia Capital Group, we use The Bucket Strategy® to help our clients navigate retirement with confidence—no matter what the market throws their way.

We do this every day.

If you’re worried about timing, income, or how long your savings will last, don’t wait for the next market dip to find out what your plan looks like.

Let’s build it now. Just give us a call.

ART-775824 07/2025