Sequence of Returns – How It Could Affect Your Retirement Plan

Sequence of returns is how long your money will last in retirement. If you’ve been reading our blog or a Secure Your Retirement podcast listener for any length of time, you know that we have a unique approach to how we set up assets to avoid the negative consequences of sequence of returns.

How Do We Approach Your Money Setup?

Our approach to discussing your money set up often starts with three main bucket types:

  1. Cash Bucket (ex: cash in the bank, easy to get to and emergency money).
  2. Income and safety bucket (provides income in retirement and is not impacted by stock market risks)
  3. Growth bucket (equities, stocks, bonds, structured notes and similar).

These three buckets are used to help visualize and plan for your retirement financial goals.

What is Sequence of Returns?

Keeping the buckets in mind, let’s take a closer look at “sequence of returns” and how it impacts your retirement planning.

Sequence of returns is a risk that we consider when building our retirement strategies.

In a nutshell, it asks the question: over the years, how much money will you make and lose?

If you put your returns into a chart by year, this is a sequence of return. You may:

  • Earn 10%
  • Earn 5%
  • Lose 4%
  • Earn 3%

Your withdrawal strategy will depend on these returns.

If you’re invested and working, you have time to recover from down years. If you have 10 –15+ years until retirement, you can recover from these down years.

But if you’re closer to retirement or in it, you don’t have the same luxury of time and income to spur recovery.

For example, imagine begin retirement in a bull market, where growth is high and the market is going strong. Growth years before having issues in the market is ideal.

Then, imagine going into retirement in 2022 with a bear market, when major indexes were down 20% – 30%.

The 12-month decline of 2022 still requires you to draw on your assets. So, if you have a down year and take $50,000 out of the account, it makes it all that much harder for you to grow your money again.


  • If you lose money, it takes longer to make it back
  • Withdrawals will make recovery harder because you’re not putting money back into the account

Remember, you’re not saving for retirement any longer. You rely on returns for income.

Using our bucket strategy, we help safeguard clients from the sequence of returns.


If you experience a major drop in your investments, the income bucket can cover your bills and you don’t have to touch the growth bucket. Not touching the growth bucket is ideal because it allows you to recover from losses faster.

Once the growth bucket is growing nicely again, you can take money out of it and replenish the income bucket. Let’s take a look at how this strategy could help in different markets.

Scenarios of Sequence of Returns

We’re going to outline two scenarios for you where you have $100,000 in a growth bucket and need to withdraw $5,000 per year from it.

In this case, you’re withdrawing 5% of your bucket per year.

We’ll be looking at these two scenarios over a 15 year period:

  1. Upmarket return
  2. Down market return

In both scenarios, when you add up all the returns earned on the $100,000 and divide by 15, the average rate of return is 4.5%. The withdrawal for both scenarios will be $5,000 a year. Both sides have the exact same growth percentages.

Keeping that in mind, let’s walk through both scenarios.

Upmarket Return

In this scenario, the $100,000 has an 8% return, and you’re withdrawing $5,000 per year, so at year 15 you’re left with $103,000. Again, it earns:

  • +11%
  • +18%
  • +14%
  • +12%
  • +9%
  • +11%

And like markets do, some down numbers start to pile up at this point. You’re frontloaded with positive years and then hit with some down years.

Down Market Return

A down market return doesn’t have this 8% – 18% growth like the person entering retirement did with the up market. You enter with five years of negative returns of:

  • -5%
  • -6%
  • -15%
  • -8%
  • -4%

During the first five years, the returns are down. You’re not making any returns, but then you hit a growth spurt and have returns of:

  • +5%
  • +7%
  • +9%
  • +11%
  • +9%

In the second-half of this retirement outlook, you have some great returns. Since both scenarios have an average growth of 4.5%, you might assume that the accounts would be similar in the end.

What were the results for the two scenarios of the growth bucket account?

  • Upmarket Return Account: Started with $100,000, withdrawing $5,000 annually. At year 15, the ending balance is $105,944.
  • Down Market Return Account: Started with $100,000, withdrawing $5,000 annually. At year 15, the ending balance is $35,889.

As you can imagine, the down market account leaves the person with significantly less money in their accounts.

The key difference? Stock markets have positives and negatives. Unfortunately, the stock market doesn’t care when you retire.

Had the three-bucket strategy been used, the down market scenario could have reduced losses by withdrawing from the income bucket rather than the growth bucket.

Buckets provide us with predictability rather than the stress and anxiety that comes with sequence of returns.

If you want to talk and discuss your retirement plan further, we’re here to answer your questions and help you find peace of mind in retirement.

Click here to schedule a complimentary call with us.