The Retirement Planning Flaw Hiding in Plain Sight
You’ve built your portfolio. You’ve done the math. But there’s one variable that changes everything if ignored: the order of market returns.
Most retirees think a 7% return guarantees success.
They're unfortunately wrong.
Two retirees could average the EXACT SAME RETURN over 20 years... and one ends up broke while the other thrives.
That's the brutal reality of sequence of return risk - possibly the most dangerous threat to your retirement that nobody's talking about.
And it's not just a hypothetical threat. A bad first few years can permanently derail decades of careful saving, even if the market rebounds spectacularly later.
In today's newsletter, you'll learn:
What sequence risk actually is (with real numbers, not theory)
Why "average returns" are a dangerous lie when you're taking withdrawals
Four battle-tested strategies to protect your retirement from bad timing
The questions you MUST ask before pulling the trigger on retirement
Let's dive in ↓
What Is Sequence of Return Risk?
Imagine this scenario:
Two retirees each start with $1 million. Each withdraws $40,000 per year. Both earn an average return of 7% annually over 20 years.
But Retiree A faces three bad market years right away:
Year 1: -15%
Year 2: -10%
Year 3: +5%
Retiree B gets the opposite sequence:
Year 1: +10%
Year 2: +12%
Year 3: -5%
Even though both averaged 7% returns over the full period, Retiree A runs out of money completely. Retiree B finishes with a healthy cushion.
Why? Because the ORDER of returns matters when you're withdrawing.
This is sequence risk in action. And it's why retirement planning based solely on average returns is financial suicide.
Strategy #1: Build a Cash Buffer
In retirement, volatility isn't just uncomfortable - it's potentially catastrophic.
One of the most effective ways to reduce sequence risk is to hold 1–2 years of planned withdrawals in cash or ultra-short-term bonds.
This gives you the flexibility to avoid selling assets at a loss during down years - which is like selling your house during a real estate crash when you don't have to.
When markets dip, you draw from the buffer. When markets recover, you replenish it.
It's not sexy. It's not exciting. But it WORKS.
And in retirement, results beat excitement every single time.
Strategy #2: Use Dynamic Withdrawal Rates
Most retirees default to a static approach: "I'll take $40,000 per year, every year, no matter what."
But markets aren't static - so why would your withdrawals be?
A dynamic withdrawal strategy adjusts based on market performance:
Cut back slightly during downturns (maybe 10-15% less)
Increase or make catch-up withdrawals in strong years
This approach can extend your portfolio's life by YEARS - without significantly sacrificing your overall lifestyle.
The math is simple: a 10% reduction in withdrawals during bad years can add 2-3 years to your portfolio's longevity.
Strategy #3: Reassess Asset Allocation
Here's a harsh truth: many retirees are carrying WAY too much risk without realizing it.
If your portfolio is still 100% stocks heading into retirement, one market crash could permanently derail your plan.
Instead:
Gradually shift to a diversified portfolio BEFORE retirement
Use risk-based buckets (Ex: HYSA for year 1–2 needs, Bucket for years 3–5, Different Strategy for long-term growth)
Create a glide path to reduce equity exposure during your most vulnerable years (typically the first 5-10 years of retirement)
This doesn't mean abandoning growth - but it does mean aligning your portfolio with your new reality: you're no longer in accumulation mode, you're in distribution mode.
Those are fundamentally different games with different rules.
Strategy #4: Diversify Your Tax Buckets
Taxes play a bigger role in retirement success than most people realize.
If all your money is in pre-tax accounts (like a traditional IRA or 401(k)), every withdrawal increases your taxable income - potentially pushing you into a higher bracket just when you're trying to preserve your funds.
Instead:
Use Roth accounts for flexibility during down market years
Tap taxable brokerage accounts when it's more tax-efficient
Coordinate your withdrawal strategy to reduce your lifetime tax bill
Tax diversification = withdrawal flexibility = less sequence risk = more control.
And in retirement, control equals peace of mind.
Ask Yourself This Before Retiring
"If the market dropped 25% in the first 3 years of my retirement... would my plan survive?"
If your answer is "I'm not sure" or "I hope so," you don't have a plan. You have a portfolio.
There's a massive difference.
A real retirement plan considers:
What specifically you'll live on in down years
How much risk your portfolio actually contains (not just what you think)
How your withdrawal strategy impacts longevity
How you'll stay invested without panic-selling at the worst possible time
The sooner you address sequence risk, the more control you'll have—before the market forces your hand.
Bottom Line
Sequence risk is a silent wealth killer.
Most retirees won't see it coming - until it's too late to recover.
But it's also completely avoidable with proper planning.
If you take the time to build in buffers, adjust risk, and plan your withdrawals strategically, you can retire with genuine confidence - not just hope and crossed fingers.
And remember: a successful retirement isn't built on the highest average return.
It's built on resilience in the face of inevitable market chaos.
See you next week.
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Opulus, LLC (“Opulus”) is a registered investment advisor in Pennsylvania and other jurisdictions where exempted. Registration as an investment advisor does not imply any specific level of skill or training.
The content of this newsletter is for informational purposes only and does not constitute financial, tax, legal, or accounting advice. It is not an offer or solicitation to buy or sell any securities or investments, nor does it endorse any specific company, security, or investment strategy. Readers should not rely on this content as the sole basis for any investment or financial decisions.
Past performance is not indicative of future results. Investing involves risks, including the potential loss of principal. There is no guarantee that any investment strategies discussed will result in profits or avoid losses.
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Why are you selling assets in retirement at all? You worked your whole life to accumulate them. If you were planning to statically withdraw 4% of portfolio value, why not create a portfolio with a 4% yield instead.