You’ve spent 30, maybe 40 years getting this right. You saved when your friends didn’t. You lived below your means. You built something real. And now, sitting five years out from retirement, or maybe six months out, or already there, you’re facing a question that keeps a lot of people up at night:
What if I do everything right for decades, and still get this wrong at the finish line?
That fear is one of the most common reasons families walk into our office. They’ve done the hard work. They have the statements to prove it. What they want now is clarity about how to navigate retirement in a way that supports their goals, recognizing that markets can be unpredictable. That is the conversation T. Ray Baker, my father and the founder of our team, has been having with families over the last 30 years, and it’s the conversation I want to have with you today.
Because there is a risk in retirement that most people don’t hear about until it’s too late to do much about it. It has a technical name—sequence-of-returns risk—but what it really means is this: the order in which good and bad markets show up during your first years of retirement could make or break a plan that looks perfectly sound on paper.
Why the Order Matters
A story I come back to often involves two couples whose situation looked nearly identical on paper. Their careers, savings, and goals all lined up. What didn’t line up was timing; one retired just before the 2008 downturn, and the other retired a couple of years later, right as the recovery was taking hold.
On paper, their plans were identical. But in reality, their first five years of retirement looked nothing alike.
The first couple spent the opening chapter of their retirement watching their accounts fall while still needing to pull money out for groceries, property taxes, and the occasional grandchild’s birthday. Every withdrawal during that stretch from holdings that were down in value locked in a loss that those specific dollars would not have the opportunity to recover. The second couple, meanwhile, pulled from holdings that were more stable and not impacted by the market, and despite having the same habits and the same discretion, their outcomes looked dramatically different.
That is the sequence-of-returns risk in real life. It’s the reason we tell clients that retirement planning isn’t just saving for retirement with a longer timeline. It’s a fundamentally different exercise.
When you’re working, a down year is a dip on a chart. You keep contributing, your paycheck keeps coming, and time is on your side. In retirement, withdrawals during a down year can have a more lasting effect because the withdrawn funds are no longer available to participate in a recovery.
Why Average Returns don’t tell you the Whole Story
You have probably heard projections built around average returns. “If your portfolio averages 7% per year, you’ll be fine.” That is a comforting sentence but it doesn’t capture the full picture.
A portfolio can average 7% a year for 25 years and still run out of money if the early returns are poor and the withdrawal rate is too high. The math on paper might look fine, but math doesn’t pay the bills — the actual dollars in your account do. What matters is how much money is there when you need to write the check, not the long-term average.
We’ve had the same conversation with clients more times than I can count. They show me a mathematical projection they built, or a retirement calculator they ran themselves, and it looks great. When we review how the plan performs under different market sequences and scenarios (essentially a stress test) the outcome can look very different. That’s usually when the real conversation and planning begins.
What We’re Worried About
Sequence-of-returns risk isn’t the only thing that keeps our clients up at night. When families sit down with us for the first time, the questions we hear most often have very little to do with the S&P 500. They are the kinds of questions a calculator can’t answer: questions about longevity, caring for family, children, and health.
What happens if one of us dies first, and the other has to manage all this alone?
This is one of the most painful questions we help families work through. When a spouse passes, the surviving partner can often be the one who wasn’t handling the investments, the tax planning, or the Social Security decisions. Planning together in advance can help reduce the complexity during an already difficult time.
What if we outlive our money?
A 65-year-old today has a real chance of living to 90 or beyond. That is a 25-to-30-year retirement. Planning for a longer retirement horizon, including the potential impact of inflation, can help support more informed decisions.
What if we pull from the wrong accounts?
The order you draw from taxable accounts, traditional IRAs, and Roth IRAs could potentially be the difference between being taxed at capital gains rates and ordinary income rates. Coordinating withdrawals across account types can help support tax-aware outcomes, but results will vary based on individual circumstances.
What if we give too much, too soon, to our kids?
We love that our clients want to help their children and grandchildren. We’ve also seen generosity go sideways when it isn’t planned. Helping your kids with a down payment, paying for a grandchild’s college, or front-loading an inheritance are all things we can talk through carefully, because what feels generous at 66 can look precarious at 86.
These are the conversations that happen in our office. Most of them have very little to do with the market. They’re about the life you’ve built, and what it takes to try to protect it.
What You Can Do About Sequence Risk
The good news is that sequence-of-returns risk is one of the most plannable risks in retirement. You can’t control the markets, but you can absolutely control how prepared you are for a bad opening stretch.
Here is what we work through with every family:
A cash buffer that lets you breathe. We generally like to see one to two years of living expenses in cash or short-term fixed interest instruments before someone retires. This approach can provide flexibility during market downturns, though it does not eliminate market risk.
Income sources that don’t depend on the market. Social Security, pensions, annuitized income, and rental properties. Having other income sources can help reduce dependence on portfolio withdrawals during volatile periods.
A tax-smart withdrawal order, set in advance. This is a decision that deserves careful planning. We sit down with families well before the first withdrawal and lay out which accounts to pull from and in what order, accounting for tax brackets, required minimum distributions, Roth conversion opportunities, and Medicare IRMAA thresholds. A coordinated withdrawal strategy may help support tax efficiency, but tax outcomes depend on individual factors and may change over time.
A written plan that accounts for bad years, not just average ones. A retirement plan should consider a range of market environments, including challenging ones, to help support more informed decision-making.
What You Get When You Work With Us
T. Ray started servicing clients in the 90s. Since then, he’s walked clients through the 2000 tech bust, the 2008 financial crisis, the 2020 pandemic drop, and every smaller correction in between. Our experience with different market environments informs our approach, though past experience does not predict future results.
Here is what we try to make true of every family we work with:
When you call, a real person answers. There’s no call center between you and us, and no “Your advisor will get back to you within 48 hours.” When you call, one of us is on the other end. We believe direct access supports clear communication, especially during important moments.
You’re building a relationship, not buying a product. We aren’t here to sell you a “product” or move you into a model portfolio and disappear. Our focus is on ongoing planning and review, rather than one-time product sales.
We are building in longevity on our team. We’re a multigenerational family team on purpose. The Baker Team was built specifically so our clients get time tested fiduciary experience with next generation insight.
Let’s Have the Real Conversation
If you’re approaching retirement, or already there, and the timing question is sitting heavier on you than it used to, we’d like to hear from you. These conversations are intended to provide information and perspective, not guaranteed outcomes. These conversations come with no pressure and no sales pitch, just an honest look at where you stand today, what’s been weighing on you, and what a thoughtful plan could look like for your family.
Schedule a complimentary 15-minute call with our team by calling (972) 502-9339, emailing jackson.baker@parkwayteam.com, or booking online here.
We’re The Baker Team at Parkway Wealth Management Group. T. Ray, Chelsea, Gavin, and Jackson. We help families plan for retirement with a focus on clarity and informed decision-making.
Frequently Asked Questions
What is sequence-of-returns risk, and why does it matter in retirement planning?
Sequence-of-returns risk refers to the danger of experiencing poor market performance early in retirement while you’re actively withdrawing income. Even if your portfolio averages strong returns over time, early losses combined with withdrawals can permanently reduce your potential portfolio’s long-term sustainability. We help clients evaluate this risk within the context of their overall plan, recognizing that all investments involve risk.
How can I protect my retirement plan during periods of market volatility?
A well-structured plan focuses on preparation rather than prediction. Strategies like maintaining a cash reserve for short-term expenses, diversifying income sources (such as Social Security or pensions), and establishing a tax-efficient withdrawal strategy can help reduce the need to sell investments during downturns. These approaches may provide flexibility, but they cannot eliminate market risk or guarantee outcomes.
Should I change my retirement strategy when the market becomes volatile?
Reacting emotionally to short-term market swings can do more harm than good. In most cases, a disciplined approach—guided by a written, long-term plan—is more effective than making sudden knee-jerk changes. We work with clients to review their plans and adjust when appropriate, recognizing that individual circumstances vary.
About Jackson
Jackson Baker is a financial advisor with the Baker Team at Parkway Wealth Management Group (located in Plano and Nacogdoches, Texas). He blends fresh insights with his family’s decades of experience to provide relatable, honest guidance for retirees and pre-retirees. Jackson and the Baker Team are committed to the fiduciary standard and works to create personalized strategies for retirement income, tax planning, and sequence-of-returns risk.
