Retirement isn’t just about how much you save — it’s about when the market moves. That’s where Sequence of Returns Risk becomes one of the biggest threats to a successful retirement. Even if long-term market returns average 7%, a bad sequence early in retirement (especially the first 5–10 years) can force you to sell shares at low prices, permanently reducing your portfolio’s ability to recover.
In 2026, with ongoing volatility and lower safe yields (3–4%), this risk feels more real than ever. A single sharp dip — like the 25% correction in 2022 — can slash your probability of success by up to 50% if you’re drawing down at the wrong time. For families, it’s even worse: forced selling can leave less for heirs under the 10-year rule on inherited IRAs.
This post explains what sequence of returns risk really is, why it’s dangerous, real examples of how it plays out, and practical steps (backed by financial modeling) to protect your retirement income planning, tax-efficient retirement, and legacy.
Why Sequence of Returns Risk Is So Dangerous
Imagine two retirees with identical portfolios and average returns. One experiences strong markets early and weak later — their savings grow. The other gets hit with a big drop right when they start withdrawing — they sell more shares at depressed prices, leaving fewer shares to recover. Same average return, very different outcomes.
This is sequence risk in action. The earlier the bad returns hit, the worse the damage — especially in retirement when you’re no longer contributing and must sell to cover expenses.
In 2026, we’ve seen volatility from global events and policy uncertainty. Markets are near highs, but history shows corrections (like 2022’s -25%) happen. Without protection, early dips can turn a confident retirement into one filled with worry.
Real Examples: How Sequence Risk Hits (and How Modeling Helps)
Here are three stories from my practice showing how modeling turns this risk into a manageable part of the plan.
- A 32-year-old engineer worried about future dips. Modeling showed how dollar-cost averaging through volatility turns bad periods into buying opportunities — projecting 25% more growth by 65. Without modeling, he would have tried to time the market and missed gains.
- A 64-year-old couple preparing to retire with ~$900k. Their initial plan had only 65% success if hit by an early dip. We modeled a 5-year conservative income floor (bonds/cash/annuities). That boosted success to 95% and protected ~$150k for grandkids — giving them confidence to retire on their terms.
- A 72-year-old retiree already drawing down after the 2022 correction. Modeling revealed sequence damage. Adding annuity income for steady cash flow cut drawdown risk by 15%, ensuring the nest egg lasts while preserving legacy.
These cases show the power of modeling: It turns fear into clarity. Without it, people fly blind and hope for the best. Hope is not a strategy.
Your Action Plan: Protect Against Sequence Risk
Here’s how to make your portfolio more resilient:
- Assess Your Exposure
Focus on the first 5–10 years of retirement — that’s when sequence risk hits hardest.
- Run a Financial Model
Use AI-powered Monte Carlo simulations to test to age 100, personalizing for your goals, health, and family.
- Build a Buffer
Model a 5-year income floor (bonds, cash, annuities) so you don’t have to sell equities in down markets.
- Layer in Smart Moves
Model short-term bonds or HSAs for health costs — keeping growth assets untouched during risky years.
- Review Annually
Markets shift fast — regular updates keep your plan resilient.
Quick tip: In your 20s/30s, volatility is your friend with dollar-cost averaging. In your 50s/60s, the income floor is critical. Retirees, prioritize steady income for peace of mind.
Free Resource: Roth IRA Conversion Playbook 2026 Edition
I’ve put together a comprehensive guide to help you navigate tax-efficient strategies that pair well with protecting against sequence risk. Download your free copy of the **Roth IRA Conversion Playbook 2026 Edition** at leonardifamilywealthcare.com/roth-ira-conversion-playbook.
Your Next Step
Want to see how your plan holds up against sequence risk? I’ll help you build **My Smart Retirement Model** — your personal financial dashboard — no cost or obligation, while time slots remain open. Book your session here: calendly.com/anthony-leonardi-leonardifwc/15-minute-check-in-quick-questions-quick-answers.
Because there IS a Smarter Way to Retire.