Sequence of Returns Risk - Why Bad Timing Hurts Retirees Most, and How to Plan for It (2026)

Sequence of returns risk is the danger that poor investment returns arrive early in retirement, just as you start withdrawing money. Two retirees with the same average return over 30 years can end up with very different outcomes if one suffers big losses in the first few years. Selling investments while they're down to pay living costs locks in those losses, leaving less money to recover when markets rebound.

It matters most in the five to ten years around your retirement date. You can't control market timing, but you can reduce the risk with a cash buffer, a sensible mix of assets and flexible withdrawals. Diversifiers that don't move in lockstep with stocks, which for some savers includes a modest gold allocation, can help.

A Simple Example

Two retirees each start with $1,000,000, withdraw $50,000 a year, and earn the same returns over three years, just in a different order.

Table: Same returns, different order, with $50,000 withdrawn at the start of each year (illustrative) | Year | Retiree A return | Retiree A balance | Retiree B return | Retiree B balance | |---|---|---|---|---| | Start | — | $1,000,000 | — | $1,000,000 | | 1 | −25% | $712,500 | +15% | $1,092,500 | | 2 | +10% | $728,750 | +10% | $1,146,750 | | 3 | +15% | $780,563 | −25% | $822,563 |

Both experienced −25%, +10% and +15%, yet Retiree A ends with about $42,000 less after just three years, because withdrawals came out of a shrunken balance early. Over a full retirement, gaps like this can mean running out of money years earlier. These figures are illustrative.

Without withdrawals, the order wouldn't matter at all. That's why this risk is specific to people drawing on their savings.

When the Risk Is Highest

Table: How sequence risk changes over a lifetime | Stage | Sequence risk | Why | |---|---|---| | Early career | Low | Contributions buy at lower prices; time to recover | | 5–10 years before retirement | Rising | Balance is large; less time to recover | | First 5–10 years of retirement | Highest | Withdrawals lock in losses | | Later retirement | Lower | Smaller remaining horizon; withdrawals smaller relative to needs |

Ways to Reduce Sequence Risk

The Role of Withdrawal Rate

The higher your withdrawal rate, the more sequence risk matters. Withdrawing 3% to 4% of your starting balance each year, adjusted for inflation, has historically left much more room to survive bad early years than withdrawing 6% or more. If a crash hits early, temporarily reducing withdrawals, even by 10%, can significantly extend how long your savings last.

Where Gold Fits

Gold has often held up or risen during stock market crises, such as the 2007–09 recession, when stocks fell sharply. If you hold some gold, you might sell part of it to fund withdrawals in a bad stock year, giving your stocks time to recover. See gold in a recession.

But gold is no guarantee. It fell in the early-1980s recessions, it sometimes dips in the first days of a panic, and it pays no income. It works best as one diversifier among several, sized modestly. See how much gold in a retirement portfolio.

A Worked Example With Gold

Suppose a retiree holds $900,000 in stocks and bonds and $100,000 in gold, and needs $50,000 in a year when stocks fall 25% but gold holds steady. Taking the year's withdrawal from gold, rather than selling stocks at a loss, leaves the stock portfolio intact to recover. Later, after stocks rebound, the retiree can rebalance back to target. This is an illustration, not a prediction of how gold will behave.

Sequence Risk and Required Minimum Distributions

Required minimum distributions from traditional IRAs force withdrawals regardless of market conditions. You can reduce the pain by taking RMDs from whichever account holds assets that haven't fallen, since the IRA RMD total can be taken from any of your IRAs. See gold IRA distributions and RMDs.

How a Gold IRA Can Be Part of the Plan

If you want gold specifically in your retirement accounts, a gold IRA funded by rolling over part of an old 401(k) lets you hold physical metal with IRA tax treatment. Plan ahead for how you'd sell or distribute it, so it can serve as a withdrawal source when needed. See gold IRA near retirement.