Why the order of returns matters more than the average

During the accumulation years, the order in which investment returns arrive is largely irrelevant. You are adding money, not removing it, and the arithmetic of compounding eventually smooths the path.

Retirement inverts that relationship. Once withdrawals begin, a poor market early in retirement forces you to sell more shares at depressed prices, permanently reducing the base that later recoveries can act on. This is what planners refer to as sequence of returns risk.

The practical implication is that the first five to ten years of retirement carry disproportionate weight. Strategies that reduce forced selling during that window, such as covering essential expenses with reliable income or maintaining a short-term reserve, are typically aimed at this specific risk rather than at maximizing return.

None of this suggests a particular allocation or product is appropriate for any individual. It does explain why a plan that looks fine on an average-return basis can still be fragile in practice.