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What will be your biggest risk when you retire? It’s probably not what you think it is.

Most people think it’ll be the skyrocketing cost of health care, higher taxes, or social security going bust.

But it’s not any one of these issues!

The biggest threat facing you in retirement is “sequence of returns” risk, and it could have a devastating impact on your nest egg.

According to CNBC “It could cause you to end up with two-thirds less money for the rest of your life.”

So, what exactly is “sequence of returns” risk?

It’s the risk of retiring during a downturn in the stock market.

If the stock market is falling during the first few years of your retirement, the combination of stock market losses and the need to withdraw money to pay for retirement could literally decimate your nest egg.

Because the stock market has been on a tear for the past 10+ years, the chances of a stock market correction, or bear market are growing by the day.

Imagine that when you retired, you’re forced to sell your investments in your IRA, 401K or other tax-deferred accounts during a downturn in the stock market – whether you want to or not.

This is exactly what could happen due to Required Minimum Distributions.

The government forces you to sell your investments inside your tax-deferred accounts whether the stock market is up or down. Once you sell these investments, you’ve locked in your losses, and you’ll never get this money back.

The only way you could avoid this is by having a strategy for RMD’s. The sooner you create that strategy, the more money you could potentially save.

Nest egg considerations:

Kiplinger (Click Here) has a great point about withdrawing money in retirement –

Let’s get real about “decumulation”—the process of spending down your nest egg in retirement. While it’s tempting to rely on simple rules of thumb and “safe” spending rates, they don’t address all of the unknowns: How long will you live? What unexpected expenses will you face? How will market performance, inflation and tax rates change in the future? Getting retirement spending right is actually “like trying to hit a moving target in the wind.”

Because of sequence risk, it’s not an effective way to plan for retirement by plugging a simple rate of return into an online retirement planning tool, which assumes you earn that same return each year.

A portfolio doesn’t work that way. You can invest the exact same way, and during one 20-year period, you might earn 10% plus returns, and in a different 20-year time period, you’d earn 4% returns. Average returns don’t work either. Half the time, returns will be below average.

Do you want a retirement plan that only works half the time?

Problems with the 4% rule

  1. Forbes, “The 4% Retirement-Asset Spend-Down Rule Is Rubbish.” But many retirees count on the 4% rule for their withdrawal strategy. According to article … “The 4% retirement rule says you should withdraw and spend an amount equal to 4% of the retirement account balances you held when you first retired”(Click Here). 
  2. Sequence of returns risk poses a major threat to this rule. You need flexibility when how much you withdraw. If the stock market plunges, the last thing you want to do is withdraw more than you need.
  3. Motley Fool, the 4% rule “doesn’t account for changing market conditions. In a recession, it’s probably not wise to step up your withdrawal amounts; you may even want to reduce them slightly. But when the markets are doing well, you might be able to withdraw more than 4% comfortably.”
  4. Kiplinger: Is 4% Withdrawal Rate Still a Good Retirement Rule of Thumb?

Watch out for RMDs

You could be forced to sell your investments and withdraw money from your retirement accounts whether you want to or not, and you’ll never get this money back again. This forces you to lock in losses, whether you like it or not.

They kick in when you turn 70 ½. And if you fail to take them, or if you make a mistake, you could face a stiff 50% penalty on the money you were supposed to withdrawal. That could leave you in a dire financial situation.C


When’s the last time you updated or rebalanced your investments? For many people, it’s been years. This is how you could get yourself into real trouble, especially with how fragile the markets are now.

The single, most important thing you could do for yourself is update and rebalance your investments, including the investments in your IRA, 401K and other retirement accounts.

This is a lot more complicated than a simple mix of stocks, bonds, and mutual funds.

We can show you the strategies that could properly diversify your portfolio that could keep your money working for you while reducing your risk.

The problem with sequence of returns risk is you have no control. You have no control over the ups and downs of the stock market.  You have no control over government rules that force you to withdraw money from your IRA or 401K.

However, you DO have control over one thing. You have control of converting your traditional IRA or 401K to a ROTH, which could help you sidestep sequence of returns risk.

Consider a Roth conversion

Depending on your situation, if might be beneficial to convert your 401K or Traditional IRA to a ROTH, or simply to save a portion of your retirement savings in a ROTH. A traditional IRA allows tax-free contributions, but when you withdraw that money, you must pay taxes. When you turn 70 ½ you are forced to withdraw this money (RMDs). 

A ROTH doesn’t allow tax-free contributions, but you pay zero tax when you withdraw money in retirement, and you don’t have to deal with RMDs. That means tax-free growth.

A Roth could give you the flexibility you need when dealing with sequence of returns risk. You gain complete control over your withdrawals.

The trick with a Roth IRA is you need to have a Roth IRA for at least five years before you can take money out of it tax-free.

Have diversified streams of income (including social security, annuities, laddered bonds)

According to The Balance, the best thing you can do to protect yourself from sequence of returns risk

“Is understand that all choices involve a trade-off between risk and return. Develop a retirement income plan, follow a time-tested disciplined approach, and plan on some flexibility.”

The 3 most important words in retirement are income, income and income.  Income will be the lifeblood of your retirement. Show me someone who lives in constant fear of running out of money in retirement, and I’ll show you someone who doesn’t have a plan to generate income.

It’s not about simply having a plan to generate income. You need a diversified income plan if you want to protect yourself from sequence of returns risk. It’s too risky to rely on just one source of income in retirement.

Income diversification isn’t a one-time thing. You should be constantly updating of your plan.  Things change quickly in today’s world, so if you aren’t updating your plan, you’re setting yourself up for a major fall.

The following are some potential sources of income to help protect you from sequence of returns risk.

Here’s a great resource fromForbes: 4 Approaches to Managing Sequence of Returns in Retirement

There are 4 general techniques for managing sequence risk in retirement:

  1. Spend Conservatively
  2. Maintain Spending Flexibility
  3. Reduce Volatility (when it matters most)
    • Build an income bond ladder
    • Build a lifetime spending floor with an annuity
    • Rising equity glide path
    • Use funded ratio to manage asset allocation
    • Use financial derivatives to cut downside risk
  4. Buffer Assets—Avoid Selling at Losses
    • Cash reserve to fund near-term expenses
    • Cash value of life insurance
    • Line of credit/Home equity

Here’s another fromForbes: 6 Ways to Generate Lifetime Income in Retirement

Immediate Annuity

An immediate annuity mimics the behavior of a pension by providing a fixed amount of income every month for the life of the retiree. It is the simplest and most-direct approach to converting a retirement nest egg into a steady income stream to meet monthly expenses.

Laddered Bonds

Unlike an immediate annuity, a laddered bond enables you to convert your savings into cash if needed. Investing in bonds of staggered maturities (“laddering” them) provides a stable stream of income through regular payments of principal and interest from the bonds while maintaining access to your savings.  

Target Date Fund with Systematic Spending

Increasingly popular Target Date Funds (TDFs) adjust the mix of stocks, bonds, and cash over time from more-risky to less-risky as you approach your retirement date. A TDF with a systematic withdrawal plan provides an income stream while keeping assets liquid and invested, and creates the potential to generate higher returns.

Managed Payout Fund

For the benefits of a simple TDF with less risk, retirees could consider managed payout funds. This option invests in both stocks and bonds while reducing the downside potential by providing monthly withdrawals equal to a fixed percentage of the account balance.

And another Forbes: 8 Sources of Retirement Income in a Low-Yield World

Dividend stocks

Most mature companies pay a recurring dividend to shareholders. In the majority of cases, these dividends are paid quarterly to shareholders who owned the stock on the date of record. Typical yields for most dividend focused ETFs are 2-3%.

Investment grade corporate bond fund

Has bond holdings from highly-rated companies in a proportion that is meant to mimic the indices they track.

Municipal bonds

Debt obligations issued by states or other municipalities to fund projects. Some, but not all, municipal bonds are exempt from federal tax for all investors and exempt from state tax if the investor lives in the state of the municipality issuing the bond.


Real estate investment trusts own a portfolio of real estate, the purchase of which is financed by debt and the issuance of securities to investors. A REIT can be public or private and open-end or closed-end.

Reverse mortgages

The bank pays you, you keep your home, and it remains part of your estate. Essentially, you are putting your home equity to work for you.

Commercial/residential/multi-unit real estate

Buying a rental property is a rather straightforward proposition, especially if you know the local market well that you’re investing in.


Insurance products that pay out over your lifetime, no matter how long you live. And these products have come a long way over the last few decades.

If you want to go into depth about using DIVIDEND STOCKS to protect against sequence of returns risk, click HERE.

And don’t forget about SOCIAL SECURITY

Social security is one your most important sources of income. You can’t outlive it, and it’s protected from market fluctuations, and inflation (COLA).

Even if you’ve earned a modest income throughout your career, your Social Security benefits could add up to 6-figures in retirement. If you’ve earned an average income, it could be worth a few hundred thousand dollars. And if you’ve earned an above-average income, your benefits could be several hundred thousand dollars in retirement. This is enough money to get Warren Buffet’s attention.

Most Americans take their social security benefits at face value. And they wind up leaving tens of thousands, if not hundreds of thousands of dollars on the table. According to new research featured in Bloomberg … 96% of HARDWORKING Americans lose an average of $111,000 in social security benefits. And it’s all due to critical timing mistakes.

Everyone’s situation is unique. The only way to get the most out of your benefits is with a customized Social Security analysis.

So what?

Successful retirements are not built on how much money you’ve saved for retirement.

They’re not built on how many assets you have either. They’re built on your ability to generate INCOME in retirement.

If you don’t have a carefully thought out plan to generate income from different sources, it’s the fastest way you could run through your entire life savings far too soon.

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Danielle Christensen


Danielle is dedicated to serving clients to achieve their retirement goals. As a Paraplanner, Danielle helps the advisors with the administrative side of preparing and documenting meetings. She is a graduate of the College of St. Benedict, with a degree in Business Administration and began working with Secured Retirement in May of 2023.

Danielle is a lifelong Minnesotan and currently resides in Farmington with her boyfriend and their senior rescue pittie/American Bulldog mix, Tukka.  In her free time, Danielle enjoys attending concerts and traveling. She is also an avid fan of the Minnesota Wild and loves to be at as many games as possible during the season!