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How Sequence of Returns Risk Could Affect Your Retirement—And What HNW Investors Should Do

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Published May 25, 2025

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Older adult seated in a room with large windows, looking contemplative — Careful planning and smart strateꩵgies can help mitigate sequence of returns risks to your legacy.
Thomas Barwick / Getty Images

Sequence of returns risk, which is the danger of poor investment returns early in retirement combined with the timing of withdrawals, can adversely ♛impact how long your retirement funds will last.

For high-net-worth (HNW) investors, this th🐎reatens not only their financial security but also their ability to leave a las𝐆ting legacy.

Key Takeaways

Sequence of returns risk is the danger of hitting a market downturn in the early stages of retirement, which can reduce your nest egg quickly if you’re already withdrawing funds.
Even wealthy investors are vulnerable, as higher spending and legacy goals can amplify the impact of early losses.
To protect against this risk, it helps to diversify, stay flexible with withdrawals, keep cash on hand, and time big expenses wisely.

Understanding Sequence of Returns Risk

Investors who experience 澳洲幸运5开奖号码历史查询:negative investment returns in their portfol🍌ios early in retirement may have reduced longevity ꦛof their retirement income. This is known as the sequence of returns risk.

When retirees start withdraw𓆉ing retirement funds during periods of market downturns, the value of their portfolios decreases quickly, leaving less capital available to recover when the markets begin improving♈.

This can be particularly damaging to HNW investo🧜rs who, while having 💧a larger amount of assets, generally also have higher expenses and dreams of leaving a legacy with their wealth.

How to Mitigate Sequence of Returns Risk

Diversify your portfolio: Diversified investment portfolios can mitigate the impact of market downturns; while some assets may perform poorly, others may not lose as much value or may even appreciate. Ensure you have a 澳洲幸运5开奖号码历史查询:mix of asset classes: stocks, bonds, commodities, real estate, etc.

Have a 澳洲幸运5开奖号码历史查询:flexible withdrawal strategy: Rather than relying on a fixed withdrawal schedule, such as taking out $1,000 every month, consider an approach that allows flexibility during market downturns—for example, reducing withdrawals and relying on other sources of income. Thi✤s keeps a larger amount of capital in your portfo🧔lios that can recover when the market reverses.

Steve Branton, certified financial planner (CFP) and managing director at Wealthspire Advisors, suggests that “At certain predetermined trigger points (10% market correction, 20% bear market), consider reducing the monthly draw by a predetermined amount (like 10%) or have the option to pause entirely any discretionary withdrawals to avoid locking in losses and cutting more into principal during a downturn. Instead, tap into cash reserves, 澳洲幸运5开奖号码历史查询:ultra-short-term bonds, or money market funds to meet spending needs and allow the sto🙈ck portion of the portfolio time to recover.”

Keep a cash reserve: Allowing yoursel🧸f a cash cushion to rely on when the market drops, rather than taking out retirement income, will also help preserve capital. This will allow you to meet basic expenses, such as food, without requiring you to sell your assets at depressed values.

Delay big expenses: When the market is volatile, it’s best to delay large expenses, such asꦅ the purchase of a new car, until there is more predictability🍷.

Legacy and Estate Planning

For HNW individuals, passing on wealth to future heirs and preserving a legacy through charitable actions is often a financial goal. Sequences 🌸of returns can challenge these plans and need to be managed effectively.

Incorporating 澳洲幸运5开奖号码历史查询:legacy and estate planning str👍ategies, such aꩵs creating trusts, tax-efficient donations, and using life insurance, can help achieve your legacy goals regardless of how 𓆏the financial markets perform.

In addition, Branton says, “Optimize your asset allocation during a downturn by reallocating investments ac꧅ross taxable, tax-deferred (individual retirement accounts), and tax-free (Roth) account types to maximize long-term return over the course of retiremen♔t. For example, concentrate high-growth, tax-inefficient assets like real estate investment trusts in Roth IRAs.”

Branton also adds that “澳洲幸运5开奖号码历史查询:Roth converting during declining markets can lock in lower tax costs on the future growth of the investments. Using the current sky-high 澳洲幸运5开奖号码历史查询:estate tax exemption level (set to expire by year-end) could allow certain high-net-worth fa🀅milies to shift out of their estate more assets while valuations are temporarily depressed.”

The Bottom Line

A comfortable and 澳洲幸运5开奖号码历史查询:financially secure retirement isn’t just about amassing retirement funds. It’s also about how and when you use those retirement funds. Markꦿet timing combined with withdrawals has a significant imp♑act on your nest egg, especially during times of market upheaval.

This is damaging for everyone and can impact the legacy plans of HNW individuals. Strategies, such as diversification, a cash pile, thoughtful planning, and strategic spending, can be employed by all to help reduce the ramifications of a bad market.

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