Question

What is 'sequence of returns risk' in the context of retirement planning?

Accepted Answer

The risk that poor investment returns early in retirement, combined with withdrawals, can permanently deplete the corpus even if long-term average returns are adequate — Sequence of returns risk is critical for retirees. A market crash early in retirement, combined with ongoing withdrawals (SWP), can drastically deplete the corpus before recovery. This is why a conservative debt-heavy allocation near and during retirement is recommended — to reduce this risk.