Sequence Of Returns Risk For Retirement

Shawn Plummer

CEO, The Annuity Expert

This guide will educate a common problem for retirees with saving, spending, and managing money before and during retirement called the sequence of returns risk.

Timing is everything. Markets have gone up and down for as long as we can remember. And when you are saving for retirement, stock market corrections may not be as consequential, while at times problematic.


Because you have time on your side for the markets to recover before you need to rely on your nest egg.

However, when you are taking income from those retirement accounts, stock market corrections can significantly impact those assets’ long-term ability to generate income for as long as you live.

And if those market corrections take place early in retirement, the risk of outliving your savings can be magnified. We call this risk sequence of returns risk or sequence risk.

The Sequence of Returns Risk and The 4% Rule

Once upon a time, there existed two siblings, Bill and Jill.


Bill did well saving for retirement. When he reached retirement age in 1996, he had accumulated one million dollars in total retirement assets.

Bill followed a broad market index fund and, upon retirement, withdrew only what he needed each year, around 4%.


Jill is three years younger than her brother Bill, and she followed in Bill’s footsteps regarding her investment strategies. She also amassed one million in total retirement assets by following the broad market index fund and withdrew 4%.

The only difference, Jill retired in 1999, three years later than her brother.

Comparing Bill and Jill

Let’s get back to Bill. He started withdrawing 40,000 a year, adjusted 3% per year for inflation. By the end of 2019, his withdrawals totaled over $1,300,000, and his residual account value increased to just over $2,100,000.

Bill’s looking good, but how’s his sister Jill?

Jill retired in 1999, but she continued to follow in Bill’s footsteps by withdrawing 40,000 a year, adjusted 3% per year for inflation. By the end of 2019, her total withdrawals totaled just over $1,100,000, but her total account value was just under $150,000.

Jill has over $1,900,000 less than her brother Bill.

What happened?

Bill retired in 1996 and experienced four years of positive returns before weathering two bear markets from 2000 to 2002 and 2008 to 2009.

Bill had more time for his retirement savings to grow before the negative returns hit.

Jill, however, retired in 1999 and only had one year of positive returns before the first bear market. As a result, Jill fell victim to sequence risk. Jill did differently and retired three years later, giving her a different sequence of market returns.

Prevent Sequence of Returns Risk With Annuities

The sequence of returns risk can significantly impact your retirement nest egg’s ability to provide income for as long as you live. But there are strategies you can use to help minimize the potential impact that sequence of returns can have on your retirement.

One option is through the use of a Fixed Index Annuity. These long-term retirement income vehicles offer tax-deferred growth potential and guaranteed income for life. In addition, there are options based on when income is needed or how early you start planning for retirement income.

Fixed index annuities also protect your retirement savings from stock market volatility and guarantee an income stream for one or two lifetimes (spouses).

Contact us for what strategies may be appropriate for your retirement, and never worry about running out of money for you and your loved ones.

How Fixed Index Annuities Protect Against Sequence Of Returns

A fixed index annuity provides the opportunity for interest to be credited based partly on the success of specific indices, such as the S&P 500, without the danger of premium loss due to market fluctuations.

Annual Reset Feature

An annual reset feature locks in interest credits annually, which means gains cannot be lost due to stock market decreases.

This feature aids in developing and protecting your retirement funds, as it prevents them from decaying in value during market downturns. The new starting point for future growth calculations will be the lower index level, not the higher one.

An Income For The Rest Of Your Life

Fixed index annuities are designed to provide an income for life after the annuity runs out of money. They’re an insurance policy for your retirement income.

We compare FIAs to other popular retirement planning alternatives and find that it is at the lowest end of the risk spectrum. As a result, premiums cannot be lost due to a market decline.

Adding a fixed index annuity to a retirement portfolio may be beneficial since it protects from market downturns and growth potential and complements other portfolios on the higher end of the risk spectrum.

Next Steps

The sequence of returns risk is a common problem for retirees with saving, spending, and managing money before and during retirement. Hopefully, this guide has educated you on the types of risks associated with the Sequence of Returns, how to calculate it, and some solutions to mitigate its effects. If you have any further questions or want to discuss your specific situation, please don’t hesitate to contact us. We would happily provide you with a free quote tailored specifically for your needs. Thanks for reading!

Sequence Of Returns Risk For Retirement (2023)

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Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

The Annuity Expert is an online insurance agency servicing consumers across the United States. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

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