Sequence-of-returns risk is the risk that the order of market returns — not just the average — hurts a portfolio you're drawing income from. Big losses in the first years of retirement, while you're also withdrawing money, can deplete savings faster and leave less to recover when markets rebound.
Strategies to manage it include holding a cash or stable buffer, being flexible with withdrawals, and using products with principal protection so a portion of income doesn't depend on market timing.
Example
Two retirees with the same average return can end up very differently if one experiences steep losses in their first two years of withdrawals.
This definition is for general educational purposes only and is not financial, tax, or legal advice. Tim Hartle is an independent insurance professional. Annuity guarantees are subject to the claims-paying ability of the issuing insurance company and are not FDIC insured. Rules and product features vary by situation and by state. Please consult a qualified advisor about your own circumstances.