Avoid This Retirement Risk: How Sequence of Returns Can Wreck Your Savings

The Hidden Retirement Risk No One Talks About

You’ve saved diligently, hit your “magic number,” and are ready to retire. But what if a market crash in your first few retirement years could derail your entire plan?

Meet sequence of returns risk—the danger that poor investment returns early in retirement could drain your savings faster than expected. With 2025’s economic turbulence (tariffs, inflation, and market swings), this risk is more relevant than ever.

Hi, I’m Mike Upland, an early retiree at 55. Let’s break down how to protect your hard-earned savings.

What Is Sequence of Returns Risk?

Imagine retiring with $1 million. If the market drops 30% in Year 1 (like 2008), your portfolio shrinks to $700,000. Withdrawing 4% annually ($40,000) now means taking 5.7% from the reduced balance, accelerating depletion. Even if markets recover later, your savings may never bounce back.

Why 2025 Makes This Risk Critical:

• Rising inflation erodes purchasing power.

• Tariffs and economic uncertainty fuel market volatility.

• Retirees withdrawing now face amplified losses.

5 Strategies to Shield Your Retirement Savings

1. Build a Cash Buffer (3–5 Years of Expenses)

A cash reserve lets you avoid selling investments during downturns.

• How Much? 3–5 years’ expenses in cash, CDs, or short-term bonds.

• Why? Bear markets can last 1–2 years; recoveries take 3–5+ years.

• Tip: Pair with low-volatility assets like Treasury bills for stability.

2. Adopt a Flexible Withdrawal Strategy

Adjust spending based on market performance:

• Good years: Stick to your planned withdrawal percentage.

• Bad years: Reduce your withdrawal percentage and/or pause discretionary spending.

• Example: If markets drop 20%, trim vacations or large purchases.

3. Use the Bucket Strategy

Organize savings into three “buckets”:

1. Short-term (1–3 years): Cash for immediate needs. This ensures you’re not forced to sell stocks at a loss.

2. Mid-term (3–10 years): Bonds or stable funds.

3. Long-term (10+ years): Growth assets like stocks.

4. Delay Social Security Until 70

Waiting boosts your monthly benefit by 8% annually post-full retirement age. Higher checks help offset inflation and reduce reliance on investments during downturns.

5. Generate Side Income

Even modest earnings ease withdrawal pressure:

• Part-time consulting, freelancing, or rental income.

• Monetize hobbies (e.g., teaching, selling crafts).

Final Tips: Stay Proactive

• Review your plan annually, especially in volatile times.

• Diversify income streams (Social Security, pensions, side gigs).

• Test your strategy with tools like Boldin Retirement Planner and/or consult a financial advisor.

Conclusion: Don’t Let Market Timing Ruin Your Retirement

Sequence of returns risk is stealthy but manageable. By building a cash buffer, staying flexible, and diversifying income, you can safeguard your savings—even in 2025’s rocky economy.

To explore even more on this topic - watch Mike's video!