Sequence of Return Risk

Sequence of Return Risk (SRR) is a critical factor in retirement planning, referring to the impact that the order of investment returns can have on a retirement portfolio, especially during the early retirement years while withdrawals are being made. Even with average returns over time, negative returns early in retirement can deplete a portfolio more rapidly, making it harder to recover from market downturns. To mitigate SRR, retirees should focus on strategies like diversification, maintaining a cash buffer, and having multiple income sources. While SRR cannot be fully eliminated, proper planning can significantly reduce its impact and help ensure financial security throughout retirement.

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