Sequence of Return Risk

Sequence of return risk is the risk that a significant market downturn occurs in the years shortly before or after retirement, forcing an investor to withdraw money early from their portfolio. Because withdrawals reduce the amount of capital available to participate in a future market recovery, early losses can have a disproportionately negative impact on long-term retirement savings. As a result, two retirees who earn the same average return over time may experience very different outcomes depending on the order in which those returns occur.

For more context, read The Sequence of Return Risk: A Retirement Red Zone.