By: Aristata Financial

When planning for retirement, most people focus on one number: average return.

If a balanced portfolio averages 5 to 7 percent per year over time, that sounds reassuring. But what many families don’t realize is that the order of those returns can matter just as much as the average itself, especially once withdrawals begin.

This is known as sequence of returns risk, and it can significantly impact retirement outcomes.

Same Average Return, Very Different Outcome

Imagine two retirees, each starting with $2 million. Both withdraw $100,000 per year to fund their lifestyle. Over a 20-year period, both portfolios average the same annual return.

On paper, they should end up in roughly the same place.

But here’s the difference:

• Retiree A experiences several negative market years early in retirement.
• Retiree B experiences strong positive returns in the early years and downturns later.

Even if both average the same return over 20 years, Retiree A may run significantly lower on assets or even risk depleting the portfolio. Retiree B, on the other hand, may remain in a much stronger position.

Why?

Because withdrawals during down markets create a compounding problem. When markets decline and you’re simultaneously taking income, you’re selling assets at lower values. That reduces the base that can recover when markets rebound. Early losses hurt more because they shrink the portfolio at the exact time it needs to support decades of income.

That’s sequence of returns risk.

Why This Risk Increases at Retirement

While you’re working and contributing to investments, market downturns can actually help you by allowing you to buy at lower prices. In retirement, the dynamic changes. You’re no longer contributing. You’re withdrawing. That shift makes the timing of returns far more impactful. This is especially important in the first five to ten years of retirement. Strong returns early can create stability and flexibility. Negative returns early can put pressure on the plan.

How We Help Families Manage Sequence Risk

One way we address this risk is through a “bucket” approach. Rather than investing all retirement assets the same way, we structure portfolios in layers based on time horizon and purpose.

Short-Term Bucket
This portion is invested more conservatively and is designed to fund near-term spending needs. Think of this as a war chest. When markets decline, families can draw income from this bucket instead of selling growth investments at depressed values.

Longer-Term Buckets
Assets intended for spending further into the future are invested differently, typically with more growth exposure. These funds have more time to recover from market volatility.

Over time, market conditions help determine where withdrawals come from. In strong market environments, we may replenish conservative reserves. In weaker markets, we lean on the short-term bucket. The goal is not to eliminate market risk. It’s to manage the timing of withdrawals in a way that supports long-term sustainability.

Planning Beyond Average Returns

Sequence of returns risk is a reminder that retirement planning is more than projecting an average rate of return on a spreadsheet. It involves coordinating withdrawal strategy, asset allocation, cash reserves, and long-term income needs. Two families with identical portfolios can experience very different outcomes depending on how and when income is taken.

For families within five to ten years of retirement, or those already retired, this planning becomes especially important. At Aristata Financial, we work with families to design retirement income strategies that account for these variables. Markets will fluctuate. The key is having a structure in place before volatility arrives.

Any opinions are those of Aristata Financial and not necessarily those of Raymond James. This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.

Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC, marketed as Aristata Financial. Investment advisory services offered through Raymond James Financial Services Advisors, Inc. Aristata Financial is not a registered broker/dealer and is independent of Raymond James Financial Services, Inc.