What Retiring in a Wobbly Market Actually Does to Your Money

Two people retire the same year with identical $1.5M portfolios. One retires into a strong market, one into a rocky one. A decade later, their financial situations look nothing alike, and neither one did anything wrong.

Most retirement conversations focus on how much you’ve saved. Get to $1 million. Get to $1.5 million. Hit your number and you’re set. That’s a reasonable starting point, but it leaves out a variable that turns out to matter enormously: when the market decides to drop.

This spring has been a reminder of that. The S&P 500 has been down roughly 4–5% year-to-date, following a strong 2025. For people who are a year or two into retirement and already making withdrawals, that’s not just a news item. It’s a real financial event with consequences that compound over time.

The technical term for this is sequence of returns risk. It sounds dry. The math behind it is not.

Two Retirees, Same Portfolio, Very Different Outcomes

Here’s the scenario that makes this concrete. Two people, call them Patricia and Robert, both retire with $1.5 million and plan to withdraw $60,000 a year (4%, the standard planning benchmark). They have the same asset allocation, the same fees, and over a 20-year period, they’ll earn the same average annual return. On paper, they should end up in roughly the same place.

Patricia retires at the end of 2024, catching the tail of a strong market run. Her first two years produce solid gains. She draws her $60,000 each year, but the portfolio is growing. At the start of year three, she has more than she started with.

Robert retires in early 2026, stepping directly into a choppy market. His portfolio drops 12% in year one. He still needs his $60,000. So he sells shares at depressed prices. Those sold shares don’t participate in the eventual recovery. His base is now permanently smaller, not just down 12%, but down 12% plus the $60,000 withdrawal.

In year five, both portfolios enjoy the same 18% gain. But Patricia’s 18% applies to a larger pool of money than Robert’s. The gap between them has been compounding the whole time.

By year ten, depending on the severity and timing of those early losses, Robert’s portfolio could be worth significantly less than Patricia’s, even though both portfolios averaged the same annual return over the period. Research by Wade Pfau at The American College of Financial Services puts a number on this: returns in the first ten years of retirement account for approximately 77% of the final outcome. Not the last ten years. Not the average of all twenty. The first ten.

Why Sequence of Returns Risk Is Worse Than It Sounds

During your working years, market timing mostly doesn’t matter. You’re adding money consistently, and a down year just means you’re buying cheaper shares that benefit from the eventual rebound. This is dollar-cost averaging, and it works in your favor.

Retirement flips that logic. You’re no longer adding. You’re withdrawing. Every year you sell shares, you’re doing the opposite of dollar-cost averaging. A bad year means you sell more shares to get the same dollar amount. Fewer shares remain. The portfolio’s recovery is muted.

Researchers and financial planners describe this as the “danger zone”, a window stretching from roughly five years before retirement to five years after. Market performance in this window has an outsized effect on how long a portfolio lasts.

Four Protective Moves That Actually Work

The goal isn’t to eliminate sequence risk, you can’t control when a recession arrives. The goal is to build a structure that doesn’t require you to sell equities at the worst possible moment.

1. The Cash Buffer

Keep one to two years of living expenses in cash or short-term instruments outside the equity portfolio. When markets are down, you draw from the cash reserve instead of selling stocks. This breaks the forced-selling cycle entirely for the near term.

The tradeoff is real: cash earns less, and inflation erodes it over time. A buffer isn’t a long-term solution on its own, but it buys time, often all the time you need to let a market recovery take hold before resuming equity withdrawals.

2. A Flexible Withdrawal Floor

Instead of treating $60,000 as a fixed annual draw regardless of market conditions, identify a true floor, the minimum you need to cover non-discretionary expenses, and give yourself permission to pull back on discretionary spending when the portfolio is down.

This doesn’t require dramatic lifestyle cuts. Pulling withdrawals back even 10–15% during a bad two-year stretch can meaningfully extend portfolio longevity. The math here is asymmetric: small, early reductions in withdrawals have an outsized positive impact because they preserve more shares for the recovery.

3. Delay Social Security as a Sequence-Risk Hedge

This is one of the most underused tools in retirement planning. Every year you delay Social Security between 62 and 70, your eventual benefit grows by roughly 6–8%. At 70, you receive approximately 76% more per month than you would have at 62.

More importantly for sequence risk: a higher Social Security benefit reduces the amount you need to draw from the portfolio each month. That’s fewer shares sold during down markets. Less forced selling. Better long-term outcomes.

The catch is that you need bridge income to cover expenses between retirement and age 70. If you retire at 65 and delay Social Security, you have a five-year gap to fund from savings. That requires planning ahead, but for people with sufficient assets, it’s one of the highest-value decisions available.

4. Reduce Concentration in Pure Growth

A portfolio tilted heavily toward high-growth equities has excellent long-term return potential, but it’s also most vulnerable during the danger zone. A sharp early-retirement downturn hits a growth-heavy portfolio harder than one with meaningful dividend income, value exposure, or international diversification.

This doesn’t mean abandoning equities. It means owning equities that hold up better during downturns and generate income you don’t have to sell shares to access. Dividend-paying stocks, for instance, let you meet withdrawal needs during a downturn without selling depressed shares.

Questions to Ask About Your Retirement Income Plan

1. If the market drops 20% in year one of my retirement, how many months of expenses can I cover without selling equities?
2. What is my true non-discretionary monthly floor, the number I actually need, not the number I’m accustomed to spending?
3. Have I modeled my withdrawal plan against a bad-sequence scenario, not just an average-return scenario?
4. If I delay Social Security by three to five years, what does the monthly income increase look like, and how do I fund the bridge period?
5. How much of my monthly expenses does guaranteed income (Social Security, pension, annuity) cover, and how much depends on portfolio performance?

The Red Flags in a Vulnerable Retirement Plan

• Your plan assumes a fixed 4% withdrawal regardless of market conditions, with no scenario for pulling back during downturns.
• You have less than 12 months of living expenses in cash or near-cash instruments.
• Your guaranteed income sources (Social Security, pension) cover less than 50% of non-discretionary expenses, leaving the rest entirely dependent on portfolio performance.
• You’ve never tested your withdrawal plan against a scenario where returns are negative for years one through three.
• You’re planning to claim Social Security at 62 or 63 primarily because you want to reduce near-term portfolio withdrawals, without calculating the lifetime cost of that decision.

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The Bottom Line

Sequence of returns risk is the thing retirement planning gets wrong most often, not because it’s hidden, but because it doesn’t show up until it’s too late to do much about it. The accumulation years train us to focus on average returns and final balances. The distribution years punish that thinking.

The 77% figure from Wade Pfau’s research is the number worth sitting with. It means that if markets cooperate in your first decade of retirement, you have significant margin for error in everything else. And if they don’t cooperate, the damage compounds in ways that average-return projections will never show you.

The four moves described here, cash buffer, flexible floor, delayed Social Security, reduced growth concentration, don’t require prediction. They’re structural adjustments that make your retirement income plan less dependent on market timing you can’t control.

None of this means you shouldn’t retire into a volatile market. It means your plan should be built to handle one.

This content is for informational purposes only and does not constitute financial, tax, or legal advice. Consult a qualified fiduciary advisor before making significant financial decisions.