In this video, Jackson Baker breaks down one of the most overlooked risks in retirement planning: sequence-of-returns risk, what the Baker Team calls “Bad Timing.” It’s not about how much you save. It’s about when a down market shows up relative to when you start drawing income. Jackson walks through what this risk actually means, why it hits hardest in the first 5 to 10 years of retirement, and the three pillars the Baker Team uses to help clients build a retirement paycheck that can weather a rough opening stretch.
Key Takeaways: What Is Sequence-of-Returns Risk?
1. The Order of Returns Matters More Than the Average
Most retirement projections are built around average returns, but averages don’t pay the bills. Two retirees can have identical savings, identical average returns over 25 years, and identical monthly withdrawals, and still end up in completely different places. The one who retired just before a major downturn, like 2008, and had to keep pulling income from a falling portfolio faces a problem the other one never did. Every withdrawal during a down market locks in a loss those dollars can never recover from.
2. This Is a Structural Problem, Not a Market Problem
You can’t control what the market does in the first year of your retirement. What you can control is how your income is structured before you get there. A portfolio built entirely for growth works well during the accumulation years. In retirement, that same portfolio, without any shock absorbers, can leave you forced to sell assets at exactly the wrong time.
3. The Three Pillars Framework
The Baker Team approaches retirement income around three sources working together:
Guaranteed Income covers the non-negotiables. Social Security, pensions, and certain annuity strategies provide a monthly floor that doesn’t depend on the market. When essential expenses are covered, there’s a lot more flexibility in how the rest of the plan is managed.
Investment Income is the long-term growth engine. A diversified portfolio structured around a thoughtful withdrawal sequence, not just a target return, helps ensure you’re not forced to sell the wrong assets at the wrong moment.
Reserve Assets are the shock absorber most plans are missing. Cash and short-term holdings that exist for one job: cover near-term expenses when markets are down, so the investment portfolio has time to recover.
4. Planning Before the Withdrawals Begin Is Critical
Once income withdrawals start, the window to restructure narrows quickly. The families that tend to weather market downturns in retirement are the ones who built the right structure before they stopped working, not the ones who tried to react after the fact. A written retirement income plan that accounts for bad sequences, not just average ones, is the starting point.
Frequently Asked Questions
What is sequence-of-returns risk?
Sequence-of-returns risk is the danger of experiencing poor market returns early in retirement while you’re actively withdrawing income. Even if your portfolio averages a healthy return over the long run, early losses combined with ongoing withdrawals can permanently reduce how long your money lasts. It’s one of the most plannable risks in retirement and one of the least discussed.
Why does this risk matter more at the start of retirement than later?
Early in retirement, withdrawals during a down market lock in losses that the remaining portfolio may not fully recover from. Later in retirement, when the portfolio has already grown, the same down year has a less permanent effect. The first 5 to 10 years are the most vulnerable window, which is why structuring income before retirement begins matters so much.
How does the Baker Team help clients plan for sequence-of-returns risk?
The Baker Team builds retirement income around three sources working together: guaranteed income to cover essential expenses, investment income for long-term growth, and reserve assets to buffer against down markets. The goal is a structure where a bad year in the market doesn’t force a client to sell assets at a loss just to pay the bills.
Is this the same as market risk?
Related, but not the same. Market risk is the possibility that investments lose value. Sequence-of-returns risk is specifically about the timing of those losses relative to when withdrawals begin. You can have a portfolio that performs well on average over decades and still run into serious trouble if the bad years cluster at the start of retirement rather than the middle or end.
When should I start thinking about this?
The earlier the better, but the most important window is the 5 to 10 years on either side of your retirement date. That is when the structure of your income plan has the most impact on long-term outcomes. If you are in that window and haven’t stress-tested your plan against a bad sequence of returns, that’s the conversation to start.
