Glossary term

Sequence-of-returns risk

The risk that the order of investment returns — particularly poor returns early in retirement — destroys a portfolio that would otherwise have lasted.

Sequence-of-returns risk is the risk that the timing of returns — not just the average — determines whether a retirement portfolio lasts. A 30% market crash in year 1 of retirement is catastrophic; the same crash in year 25 is barely noticeable.

The standard defence is a glide path (shift toward more debt as retirement approaches), a cash buffer (2–3 years of expenses in liquid assets), and the bucket strategy (short-term cash, medium-term bonds, long-term equity). Ignoring sequence risk is the most common retirement-planning mistake.