Advertisement
A well planned retirement can be upended by unfortunate market timing. Read about sequence-of-returns risk, and how to guard against it.
Sequence-of-returns risk refers to the potential negative impact of the timing of market returns on your financial security after retirement. Managing sequence-of-returns risk can help you reduce the likelihood of outliving your money.
When trying to forecast a sustainable withdrawal rate from their retirement accounts, people often assume an average market return, typically 6% or 7% annually. Even if your return assumption is conservative, however, as you spend money to fund your post-retirement expenses, the sequence of market returns may have a surprisingly large impact on your investment portfolio.
While stock markets tend to rise over time, they can fluctuate significantly. For example, as of September 9, 2025, the 10-year annualized total return for the S&P/TSX Composite Index was 11.3%. However, returns didn’t increase steadily by 11.3% each year. In 2015, the return declined by 8.3% and in 2021, it soared, up 25.1%.
Withdrawing money from a retirement account during a down market reduces your ability to benefit from future upswings. Depending on the severity of the market decline, some retirees may need to reduce their spending to avoid jeopardizing their long-term financial security.
Imagine a person who retired in 2015 with savings of $500,000 invested in the S&P/TSX Composite Index. Ignoring the impact of fees and taxes, and assuming they withdrew $40,000 at the beginning of each year, they’d have around $420,000 five years later. Had the person retired in 2019 with same amount of money, they’d have about $560,000 at the end of five years, more than 30% more.
The first scenario illustrates how an unfavourable sequence of returns can result in a shrinking portfolio. In the second scenario, the investor’s portfolio continues to grow, rather than being depleted by their spending.
Some simple strategies can help reduce your exposure to sequence-of-returns risk:
Sequence-of-returns risk is often overlooked during retirement planning, but managing it can make or break your long-term financial security.
Example: “Foundations and endowments often reduce the impact of sequence-of-returns risk by setting annual spending goals as a percentage of assets rather than absolute amounts. When markets decline, they automatically spend less money, supporting the long-term sustainability of their funds.”
Share this article Share on Facebook Share on Twitter Share on Linkedin Share on Reddit Share on Email
Which ETFs should you invest in? Which ones best suit your risk tolerance? What about personal ethics? Check out...
Profits soar at Groupe Dynamite and Transat, Empire edges higher, but Roots struggles with a quarterly loss.
More and more Canadians are entering their golden years without grown children to help out should they lose their...
Prenups aren’t just for the wealthy. Experts explain how they protect assets, manage debt, and evolve with life changes—while...
Ottawa examines the $70B Anglo-Teck merger, as both companies’ shares jump and investors show strong support.
Inheriting stocks? Learn the tax rules, when to sell, and how to decide if keeping inherited investments makes sense...
The oilsands takeover fight intensifies as MEG investors prepare to choose between short-term payout and long-term equity gains.
Whether you want the highest interest rate or no service fees, these savings accounts will meet your needs.
How taxation of ETFs works in non-registered accounts, and some fund suggestions that will allow you to keep more...
