Could Sequence-of-Returns Risk Derail Your $2 Million Retirement?
If you are within five years of retirement and have $2 million or more saved, you may feel like most of the hard work is behind you. You spent decades building your portfolio, investing consistently, and preparing for the point when work becomes optional. But the transition from saving money to withdrawing it introduces a risk that many investors underestimate: sequence-of-returns risk.
Sequence-of-Returns risk means that the timing of market gains and losses can affect how long your retirement savings last. Two retirees can start with the same portfolio, withdraw the same amount, and experience the same average investment returns, yet finish retirement with dramatically different balances simply because their market returns occurred in a different order.
What Is the Sequence of Return Risk?
Sequence-of-Returns risk is the possibility that poor investment returns early in retirement will cause lasting damage to your portfolio because you are withdrawing money at the same time. During your working years, market declines can still hurt, but you are typically contributing new money and have years to allow your investments to recover. Once retirement begins, that equation changes.
When your portfolio falls and you need money for living expenses, you may have to sell investments while their values are down. Those shares are no longer invested when markets eventually recover. This leaves a smaller portfolio participating in the rebound and can reduce the amount of money available to support you later in retirement.
Read: 7 Common Financial Blind Spots for High Earners
Why Your First Years of Retirement Matter So Much
A market decline during your first few years of retirement can be much harder to absorb than the same decline 10 or 20 years later. When you withdraw money from a declining portfolio, you may need to sell more investments to generate the cash you need. That leaves fewer assets invested to benefit when the market eventually recovers.
This is why your retirement date can create risk that has little to do with how well you saved. You cannot control how the market performs during the year you retire. You can, however, control how much you withdraw, which accounts fund those withdrawals, how much cash you keep available, and how your portfolio is positioned when retirement begins.
How Two Similar Retirees Can Have Different Outcomes
Consider two hypothetical investors who each start retirement with $1 million and initially withdraw $50,000, increasing their withdrawals by 2% each year for inflation. One experiences 15% portfolio declines during the first two years of retirement. The other experiences those same declines during years 10 and 11.
The first investor's portfolio runs out of money in roughly 18 years. The investor who experiences the losses later still has nearly $400,000 after 18 years. Although this hypothetical example does not account for taxes or fees, it shows why timing matters. Poor returns can be much harder to recover from when they happen while you are taking withdrawals.
Key Takeaways
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Timing Matters
Sequence risk is the danger that the timing of withdrawals from a retirement account can hurt your long-term results.
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Bear Markets Can Hurt More
Taking money out of your account during a market downturn can drain your savings much faster.
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3
Diversify and Build a Cushion
Having a mix of investments like bonds and keeping emergency funds can help reduce the impact of market drops.
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4
Adjust as You Get Closer
Adjust your investment mix as markets change and as you get closer to retirement.
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5
Review Regularly
Check your portfolio and retirement plan regularly and make changes when needed.
Why Average Returns Do Not Tell the Whole Story
Average returns can give you a general idea of how your investments performed over time, but they do not show when the gains and losses occurred. Once you start taking retirement withdrawals, that timing matters.
Early market losses can leave you selling investments when their values are down, giving your remaining portfolio less money to recover with. This is why retirement planning should consider the order of your returns, not simply the average return your portfolio earns.
Also read: What Are the 7 Tax Filing Mistakes Retirees Make That Cost the Most?
Why Having $2 Million Does Not Eliminate Sequence Risk
A $2 million portfolio can provide significant retirement flexibility, but a larger balance does not remove sequence-of-returns risk. What matters is the relationship between your portfolio, your spending, your taxes, your asset allocation, your other income sources, and what happens in the market while you are withdrawing money.
Consider someone retiring with $2 million who needs $120,000 annually from investments before taxes. A major early market decline creates a different problem than it would for someone who only needs $50,000 from the same portfolio. Retirement planning therefore cannot stop at answering, "How much have I saved?" It also needs to answer, "How will I turn those assets into reliable income?"
Building a Cash Reserve Can Reduce Forced Selling
One way to manage sequence-of-returns risk is to keep part of your near-term spending needs outside your stock allocation. One approach is to hold approximately one year of expenses, after accounting for income such as Social Security, in cash investments, followed by another two to four years of expenses in high-quality short-term bonds or short-term bond funds. The appropriate amount will depend on your income needs, portfolio, and overall retirement strategy.
The purpose is straightforward. If stocks fall sharply during your first year of retirement, you may be able to use cash or lower-volatility investments for spending instead of immediately selling stocks. A reserve does not prevent market losses, but it can give your stock holdings more time to recover before you need to sell them.
Your Withdrawal Order Matters Too
Sequence-of-returns risk is not only about how much you withdraw. It is also about where the money comes from. You may enter retirement with taxable brokerage accounts, traditional IRAs, 401(k)s, Roth accounts, cash, Social Security, pensions, real estate income, and other assets. Taking money from each source can create different investment and tax consequences.
Taxable, tax-deferred, and Roth accounts can also require different considerations when deciding how to generate retirement income. For individuals with significant assets, this makes coordination between investment management and tax planning especially important. A withdrawal decision that solves this year's income need can also affect future taxes, portfolio balances, and how much money remains invested for later in retirement.
Retirement Income Planning Is Different From Investment Management
During your career, the objective is relatively straightforward: save, invest, diversify, and give your portfolio time to grow. Retirement adds another responsibility. Your investments now have to fund spending while continuing to support potentially decades of future needs.
That means retirement planning should address more than which investments you own. It should consider how much income you need each year, where that income comes from, how withdrawals change during weak markets, when Social Security begins, how taxes influence distributions, and how much liquidity you should maintain. sequence-of-returns risk connects all of these decisions.
How a Virtual Family Office Can Help
For individuals and couples with $2 million or more, these decisions can become increasingly connected. An investment strategy may affect your taxes. Your withdrawal strategy may affect Medicare premiums or future account balances. Social Security timing may influence how much you need to withdraw from investments during your early retirement years. Estate planning goals may also affect which assets you spend first and which you want to preserve.
At ONE Advisory Partners, our Virtual Family Office helps coordinate these moving parts through a Retirement Income Blueprint. The goal is to create a year-by-year strategy for turning accumulated wealth into retirement income while preparing for risks such as an early market decline. Instead of treating investment management, tax strategy, withdrawal planning, and long-term financial decisions separately, the plan connects them into one retirement strategy.
Read: What Does A Virtual Family Office Do And Who Actually Needs One?
Bottom Line
Sequence-of-returns risk is a reminder that reaching your retirement number is only part of retirement planning. The timing of market returns after you stop working can influence how long your savings last, particularly when losses occur during the early years of withdrawals. You cannot choose the market environment you retire into, but you can prepare for different outcomes.
If you are within five years of retirement and have accumulated $2 million or more, now is the time to think beyond portfolio growth and start building a detailed retirement income strategy. Schedule a conversation with ONE Advisory Partners to learn how a Virtual Family Office and Retirement Income Blueprint can help coordinate your investments, withdrawals, taxes, and long-term retirement goals.
Frequently Asked Questions About Sequence-of-Returns Risk
What is sequence-of-returns risk?
Sequence-of-returns risk is the risk that poor market returns early in retirement can reduce how long your savings last. The problem becomes more serious when you are withdrawing money because you may need to sell investments after they have fallen in value.
When is sequence-of-returns risk highest?
Sequence-of-returns risk is generally most concerning around the transition into retirement and during the early retirement years. Losses during this period can have a greater long-term effect because withdrawals leave fewer assets invested to participate in a later market recovery.
Does sequence-of-returns risk matter if I have $2 million or more?
Yes. A large portfolio does not eliminate sequence-of-returns risk. Your exposure depends on factors such as your withdrawal rate, spending needs, asset allocation, taxes, other income sources, and market performance during the first years of retirement.
How can I reduce the sequence-of-returns risk?
Strategies may include maintaining cash reserves, holding high-quality short-term bonds, adjusting withdrawals during market downturns, postponing large discretionary expenses, and maintaining an appropriate asset allocation. Your approach should reflect your income needs and overall retirement plan.
Should I move my retirement portfolio to cash before retiring?
Moving your entire portfolio to cash can create other risks, including inflation risk and reduced long-term growth. Instead, you may want enough liquid assets to cover near-term expenses while keeping other investments positioned for longer-term needs.
How many years of cash should I have in retirement?
There is no single amount that works for everyone. One approach is to consider keeping about one year of expenses, after accounting for other income sources, in cash investments. Another two to four years of expenses could be held in high-quality short-term bonds or short-term bond funds. Your appropriate cash reserve will depend on your spending needs, income sources, investment strategy, and overall financial situation.
Can a Virtual Family Office help manage sequence-of-returns risk?
A Virtual Family Office can coordinate investment management with retirement income, tax, Social Security, estate planning, and withdrawal decisions. For individuals and couples with $2 million or more, this coordinated approach can help create a plan for generating retirement income while preparing for periods of market volatility.
References
Investopedia. (2026). Understanding Sequence Risk: Protecting Your Retirement Income. Retrieved from https://www.investopedia.com/terms/s/sequence-risk.asp
Charles Schwab. (2026). What Is Sequence-of-Returns Risk? Retrieved from https://www.schwab.com/learn/story/timing-matters-understanding-sequence-returns-risk
Boldin. (2026). sequence-of-returns Risk: How to Protect Your Savings. Retrieved from https://www.boldin.com/retirement/what-is-sequence-of-returns-risk/
