Does the Year You Retire Matter? Sequence of Returns Risk Explained

Retirement income planning is the process of deciding how savings, Social Security, pensions, and other resources may be turned into spending money over a retirement of uncertain length. A central risk is sequence of returns risk: weak markets early in retirement, while withdrawals are being taken, may shorten how long a portfolio lasts even when average returns over the years look similar. A plan generally considers spending, taxes, insurance, health care, and legacy together. Facts vary by household, and losses are possible.

Why this matters

Retirees often rely on markets they cannot control, and a mix of stocks and bonds does not always cushion a decline. In 2022, the S&P 500 fell about 18.1% and the Bloomberg U.S. Aggregate Bond Index fell about 13.0%, both measured as total return (Gateway Investment Advisers; Baird Advisors). Past results do not predict future ones. Add longer lives, uncertain health and long-term care costs, and legacy decisions, and income planning has more to cover than a portfolio. Planning cannot remove these risks, but it may help a household see them before income begins.

Does the year you retire matter?

Picture two retirees who each start with $1,000,000 at age 62 and withdraw $40,000 a year, about 4% of the starting balance. Both are fully invested in the S&P 500. One retires at the start of 2000 and the other at the start of 2010. After 16 years, the 2000 retiree has about $640,000 and fell as low as about $426,000 along the way. The 2010 retiree has about $5.8 million.

Retired at the start of 2000

$640,000

balance after 16 years, at age 78

Lowest point: $426,000 (end of year 9, 2008)

Retired at the start of 2010

$5,841,000

balance after 16 years, at age 78

Lowest point: $1,000,000 (never below the starting balance)

Hypothetical year-end balances for two retirees who start withdrawals in 2000 and 2010, shown every four years.

Year-end balance	StartAge 62	Yr 4Age 66	Yr 8Age 70	Yr 12Age 74	Yr 16Age 78
Retired 2000	$1.00M	$644K	$716K	$485K	$640K
Retired 2010	$1.00M	$1.56M	$2.22M	$3.99M	$5.84M

Hypothetical illustration for education only. It applies S&P 500 calendar-year total returns (dividends included) to a hypothetical $1,000,000 portfolio. The index is unmanaged and cannot be invested in directly. This is not an Acanto portfolio, strategy, or client result, and it is not a forecast. It ignores fees, taxes, and inflation, and including them would lower the balances. Withdrawals are a fixed $40,000 per year, taken at the start of each year, and are not adjusted for inflation. The two start years were chosen as examples, not as typical cases: among start years 2000 to 2010, 2000 produced the lowest 16-year ending balance and 2009 the highest, and 2010 ranked second highest. Past returns do not predict future ones. Investing involves risk, including the potential loss of principal. Source: Slickcharts, S&P 500 Total Returns by Year (slickcharts.com/sp500/returns), read October 20, 2026.

Neither result is typical. These two start years were picked as examples from the low and high ends of the years from 2000 to 2010. The difference is not skill or spending. It is the sequence. The 2000 retiree's early withdrawals overlapped a run of declines in 2000, 2001, 2002, and again in 2008. The 2010 retiree's early withdrawals met mostly rising markets.

Nobody chooses the year they retire or the markets that follow. That is why a plan generally tests more than one path, and why spending flexibility, cash reserves, and other income sources matter. If you would like to see how your own numbers hold up, an Asset-Map Discovery Session is a place to start.

What is sequence of returns risk?

Sequence of returns risk is the risk that the timing of investment returns, not just their average, affects how long a portfolio lasts. It matters most around the start of retirement, because withdrawals are taken while the portfolio may be down, and money sold during a decline is no longer invested when markets recover.

Pre-retirees often feel this risk most. They have fewer working years left to rebuild after a large decline, and a downturn near the retirement date can shape early withdrawal decisions. Sequence risk does not mean retirement income is unworkable. It means the plan generally needs to be tested against more than one market path.

Why can the order of returns matter so much?

To isolate the effect, here is a constructed example that uses one set of twenty yearly returns in two orders. Both retirees start with $1,000,000 and withdraw $40,000 a year. Retiree A meets the weak years first, and Retiree B meets them last. Withdrawals taken while a portfolio is down leave less invested to recover, so the order can change how long the money lasts.

Retiree A

Weak years first

$922,000

balance at the end of year 20

Retiree B

Weak years last

$1,659,000

balance at the end of year 20

Retiree C

Annuity, 0% floor and 5% cap

$804,000

balance at the end of year 20

Hypothetical year-end balances and average yearly returns for three retirees, shown every five years.

Year-end balance	Yr 5	Yr 10	Yr 15	Yr 20
Retiree A	$620K	$715K	$768K	$922K
Retiree B	$1.27M	$1.56M	$2.16M	$1.66M
Retiree C	$884K	$852K	$812K	$804K
Average yearly return in each 5-year block	Yrs 1-5	Yrs 6-10	Yrs 11-15	Yrs 16-20
Retiree A	−2.6%	+9.6%	+7.4%	+9.0%
Retiree B	+9.0%	+7.4%	+9.6%	−2.6%
Retiree Ccredited	+2.0%	+4.0%	+4.0%	+5.0%

At the end of year 20, Retiree A's balance is about 56% of Retiree B's, even though both earned the same returns and took the same withdrawals. The order is the only difference.

Retiree C faces the same weak-years-first order as Retiree A, but the 0% floor limits each year's loss and the 5% cap limits each year's gain. Its lowest year-end balance is $804,000, compared with $577,000 for Retiree A, and it ends year 20 below both A and B. The floor limited the early losses; the cap limited the later gains.

Year-end balance, years 0 to 20. Blue is A, gray is B, dashed black is C.

Hypothetical illustration for education only. These figures are constructed to show how timing can matter. They are not actual or projected results, do not represent any investment, index, strategy or client account, and are not a forecast. Withdrawals are a fixed $40,000 per year, taken at the start of each year, and are not adjusted for inflation. Fees, taxes and inflation are not reflected; including them would lower the balances. Balances are rounded for display. Average returns are simple averages of the yearly figures. Retiree C holds a hypothetical fixed indexed annuity whose yearly credit equals the index return, but never below 0% and never above 5%, and it ignores dividends. Real contracts differ: caps, participation rates and spreads are set by the insurer and may change, and contracts may carry fees, rider charges, surrender charges and withdrawal limits. Guarantees depend on the insurer's claims-paying ability. None of these are modeled, and including them could lower the balances. This is not a recommendation of any product. Investing involves risk, including the potential loss of principal.

What does the comparison show?

The two paths use identical returns and identical withdrawals. Retiree A's declines arrive while withdrawals are already being taken, so the later gains have a smaller balance to work with. Retiree B's early gains build a larger base before the declines arrive. B's balance still falls at the end, a reminder that weak years late in retirement matter too. This is a general illustration, not a forecast, and actual results depend on many factors, including fees, taxes, and inflation, which the figure leaves out.

What about a third path with a floor and a cap?

Retiree C is there to show a trade-off, not a winner. A fixed indexed annuity credits interest linked to an index, usually with a floor that limits losses and a cap that limits gains. In this hypothetical, the floor softened the early declines and the cap held back the later gains, so the path was smoother but ended below both of the others. A different cap, fees, or order of returns would change the picture. Contracts can carry surrender charges, fees, and withdrawal limits, and guarantees depend on the insurer's claims-paying ability. Whether an annuity belongs in a plan is an individual question to weigh with a licensed professional. This is education, not a recommendation of any product.

How do different portfolio designs try to manage this risk?

No approach removes sequence of returns risk. Here is how some investors and Acanto think about it, with the trade-offs.

What do hedged and income-focused ETFs try to do about it?

Some investors look at funds built to soften early declines. Buffer (defined-outcome) ETFs are designed to absorb a stated range of losses over a set period, usually in exchange for a cap on gains, and only for those who hold through the full period. Hedged equity funds may use options or VIX futures to try to reduce losses, but hedges cost money, may not offset a given decline, and may lag in rising markets. Some income-focused ETFs use option writing to produce distributions, which are not guaranteed, may limit gains, and may include a return of capital. All carry fees, taxes, and complexity. This is education, not a recommendation of any fund or approach.

How does Acanto's research approach the same question?

Questions like these are part of why Acanto researches adaptive, rules-based strategies of its own. Adaptive 8A, explained in How Adaptive 8A works, uses momentum to choose among asset classes and risk parity to size them. T20 applies momentum within equities, holding a small group of top-ranked stocks, as described in Equity Momentum Unpacked. Used together, the research seeks growth across asset classes and equities while trying to limit drawdowns. The performance figures in those papers are hypothetical. Some Acanto clients invest using these strategies, and their actual results may differ because of timing, fees, taxes, and individual circumstances. This article does not present actual client results.

These approaches have real disadvantages:

• Monthly rebalancing. Trading costs and taxes may apply.
• Concentration and defensiveness. Holdings can become quite concentrated, and the portfolio can turn extremely defensive from one month to the next.
• Tracking. Results generally do not move with the broad market, so there may be stretches of apparent underperformance.
• Taxes. Because gains may be mostly short-term, these strategies are usually considered for non-taxable accounts. Ask your tax professional.

They do not predict the future, can lag or lose money, and there is no guarantee they will avoid a drawdown. Some investors may find them a complement to a broader plan, which is an individual question. Our paper Understanding Downside Risk: The Blended Portfolio Framework explains in detail how they may be combined and where the approach falls short. Any real plan starts with an Asset-Map Discovery Session, which shows a household's other assets and the risks that can be identified. Nothing here claims that 8A, T20, or any fund above would have changed the result for either start year shown.

Hypothetical and backtested results have inherent limitations: they are built with hindsight, do not reflect actual trading, and may not reflect material economic and market factors. Figures in Acanto's papers may be gross of fees, which, along with trading costs and taxes, would reduce them. Read each paper for its basis, periods, and assumptions. Actual results for any client may be higher or lower. Past performance does not guarantee future results. Any investment can lose money.

Key takeaways

• The order of market returns can matter once withdrawals begin. Two retirees with the same average return may have different results.
• Income planning asks how long money may need to last and where each dollar of spending will come from.
• A plan touches more than investments: liquidity, debts, insurance, longevity, long-term care, and legacy all play a part.
• No plan removes market risk or guarantees an outcome. A plan is a set of assumptions that is reviewed as conditions change.

What is retirement income planning?

Retirement income planning shifts the question from "how much can I save?" to "how may I draw on what I have?" During working years, paychecks arrive on a schedule. In retirement, income may come from several places, such as Social Security, a pension, an employer plan, IRAs, taxable accounts, annuities, or part-time work. Each source has its own timing, tax treatment, and limits.

A retirement income plan generally tries to answer four questions in plain terms:

1. What spending is essential, and what is flexible?
2. Which sources may cover each type of spending, and in what order?
3. How may taxes affect what is actually available to spend?
4. What happens to the plan if markets, inflation, health, or life events do not follow the assumptions?

Online calculators can be a useful first look. They usually rely on a single set of assumptions, though, and rarely show how your accounts, taxes, insurance, and estate documents interact. That is where a fuller review may add context.

Which areas of your finances should a retirement income plan cover?

A portfolio is only one part of retirement income. At Acanto we organize the wider picture around the 6 Ls, six areas that can each affect how much income is available and how long it may last.

• L: Liquidity

  Do you have enough accessible cash for emergencies and opportunities?

• L: Liability

  Are your debts, obligations, and potential legal exposures managed and covered?

• L: Life Insurance

  Is your family's future secure if something happens to you?

• L: Longevity

  Will your assets last as long as you do? Are you prepared for a long life?

• L: Long-Term Care

  Do you have a plan for potential healthcare costs in retirement?

• L: Legacy

  Are your estate documents in order to pass wealth efficiently?

Illustration for education only. It is not advice, and every household's facts differ.

A few ways these areas connect to income:

• Liquidity may determine whether a market decline forces you to sell investments or whether cash can cover near-term spending.
• Liability such as a mortgage or other debt can raise the amount of income needed each month.
• Life insurance may matter if one spouse's income or pension would change after a death.
• Longevity raises the question of how long income may be needed. A longer retirement gives inflation and market risk more time to matter.
• Long-term care costs are uncertain and may be large. Plans differ in how they prepare for them, and each approach has costs and limits.
• Legacy goals, including beneficiary designations and estate documents, may influence which accounts are spent first. For more, see our guide to estate planning essentials.

What steps does a retirement income review follow?

Acanto's planning process starts with seeing the full picture before any strategy is discussed.

1. 1

   Step 1: Data collection

   Asset-Map® Discovery Session: see the full picture first.

2. 2

   Step 2: Retirement forecasting

   Comprehensive Retirement Analysis: stress-test the plan against different conditions.

3. 3

   Step 3: Strategy design

   Consider structures and portfolios only after the picture is clear.

4. 4

   Step 4: Monitor and adapt

   Review as markets, rules, and life circumstances change.

Illustration for education only. It is not advice, and every household's facts differ.

In practice, the steps may look like this:

1. Collect the data. An Asset-Map Discovery Session places accounts, income, insurance, liabilities, and estate documents on one page.
2. Forecast and stress-test. A Comprehensive Retirement Analysis and Scenario Testing compare different choices, such as retirement timing or withdrawal approaches, under different conditions. Scenarios rely on assumptions, so they illustrate possibilities and do not predict results.
3. Design the strategy. Only then are structures and portfolios considered. Cash-Flow Planning connects spending needs to the sources that may fund them.
4. Monitor and adapt. Markets, tax rules, and family circumstances change, so a plan is reviewed rather than set once.

What can influence how long retirement income lasts?

Several levers tend to matter, and each has trade-offs:

• Spending flexibility. Being able to adjust spending after a weak market year may reduce pressure on the portfolio. Not every household has that flexibility, especially when essential costs are high.
• Withdrawal order and taxes. Drawing from taxable, tax-deferred, and Roth accounts in different orders may change the tax cost of the same spending. The right order depends on individual facts. See our explainer on the Roth IRA five-year rule for one timing rule that can affect Roth withdrawals.
• Inflation. Prices that rise over many years may erode the buying power of fixed income.
• Portfolio design. Some approaches hold a fixed mix, while others adjust under written rules. Each has limits, discussed in tactical vs strategic asset allocation. Adjustments may not help, and costs and taxes may apply.
• Claiming and timing decisions. When to retire, when to claim Social Security, and when to start other income sources can change the picture. Confirm the current rules with the Social Security Administration and your tax professional.

Do retirement withdrawal rules of thumb work?

Rules of thumb, such as a fixed percentage of the starting portfolio withdrawn each year and adjusted for inflation, give a starting point for a conversation. They were built on historical data and fixed assumptions, so they may not fit every household or every market environment. They also do not account for taxes, changing spending, or the sequence of returns. Treat any single rule as one input, not a guarantee.

Why does Acanto call this Total Financial Awareness?

Retirement questions range from the simple ("Will my monthly income cover my bills?") to the complex ("How do my business interest, trust, and tax situation fit together?"). In both cases, decisions made in isolation can pull against each other. Total Financial Awareness is our name for starting with the whole picture: every account, every source of income, every obligation, and every goal, seen together before strategy is chosen.

Three commitments shape how we work: independence as a registered investment adviser, intelligence in the form of written rules and original research with their limits stated, and integrity in the form of plain-language education with costs and risks disclosed. They guide our work. They do not promise an outcome, and results vary by household.

Clarity First. Strategy Second. Integrity Always.

• Independence

  An independent registered investment adviser, not a captive advisor model.

• Intelligence

  Written rules and original research, with their limits stated.

• Integrity

  Plain-language education, with costs, risks, and limits disclosed.

Illustration for education only. It is not advice, and every household's facts differ.

You can read more about how Acanto approaches planning on our services and strategies pages.

Frequently asked questions

What is retirement income planning?

Retirement income planning is deciding how savings, Social Security, pensions, and other resources may be used to fund spending over a retirement of uncertain length. It generally covers spending needs, taxes, withdrawal order, insurance, health care, and legacy goals together. It relies on assumptions, so it is reviewed over time.

What is sequence of returns risk?

Sequence of returns risk is the risk that the order of investment returns affects how long a portfolio lasts once withdrawals begin. Weak returns early in retirement may reduce a portfolio more than the same returns later, because money is withdrawn while values are lower. It is one reason plans are tested against more than one market path.

How do I create a retirement income plan?

A common approach is to list essential and flexible spending, identify each income source and when it starts, estimate the tax effect of each source, and test the result against weaker markets, higher inflation, and a longer life. An advisor or tax professional can help apply this to your facts. A single calculator result is generally a starting point, not a plan.

Can a retirement portfolio still lose money if I plan carefully?

Yes. Investing involves risk, including the potential loss of principal. A plan may help you understand and prepare for risks, but it cannot remove them or guarantee a result.

Is retirement income planning only for people who are already retired?

No. Pre-retirees often benefit from starting earlier, because decisions about savings, account types, insurance, and timing may affect the options available later. Whether and how to act depends on your situation.

Start with the full picture

Before choosing how to draw income, it helps to see everything the income needs to support. An Asset-Map Discovery Session places your accounts, income, insurance, liabilities, and key estate documents on one page, so income questions can be considered alongside the rest of your plan. Schedule your Asset-Map Discovery Session or schedule a planning conversation with questions about how these ideas may apply to you.

Important disclosures

This article is provided by Acanto LLC, a Registered Investment Advisor, for general informational and educational purposes only. Registration does not imply a certain level of skill or training. It is not individualized investment, tax, or legal advice, an offer or solicitation, or a recommendation to buy or sell any security or adopt any strategy. Investing involves risk, including the potential loss of principal, and no strategy can guarantee a profit or protect against loss. Illustrations are hypothetical, are for education only, and are not forecasts or actual client results.

Funds and strategies are described here by general type only, and no fund is named or recommended. Features such as buffers, caps, hedges, fees, and distributions differ by fund and can change, so review a fund’s prospectus and your own circumstances before considering it. Adaptive 8A and T20 are Acanto strategies. Their description here is not a statement that they are suitable for any investor, and they may not be appropriate or available for every client. Whether any approach fits depends on an individual review.

Acanto does not provide legal or tax advice. Please consult your tax and legal professionals about your own situation. Rules for Social Security, taxes, and retirement accounts can change. For more information about Acanto's services, fees, and business practices, review Form ADV Part 2A, available upon request or at adviserinfo.sec.gov.