Sequence of returns risk in retirement

The timing of market volatility can significantly affect a retiree’s ability to make savings last. Explore sequence of returns risk in this second in a series of articles. 

Guard against sequence of returns risk

Running out of money in retirement is a serious risk that many retirees face. Retirees may live longer than they expected. They may withdraw their money too quickly. Inflation may impact their retirement savings. They also may lose the ability to make sound financial decisions later in life. But the most significant risk may be market volatility or “sequence of returns” risk.

The problem is this: While employees are working, they’re accumulating retirement savings. The money is invested in securities that fluctuate in value with the market. The mantra of “stay the course” may work when new money —deferrals and matches — is added at low prices during the bear markets. That changes at retirement when contributions stop and money is withdrawn to pay living expenses.

The risks of market downturns

If the securities markets are trending upward, investment growth may offset amounts withdrawn. But what if the markets go down right before a person retires or, even worse, right after? If the downturn happens while an employee is still working, he or she may be able to recover because the employee is able to work longer and put more money into the plan account. The more serious situation is where the downturn happens right after the employee retires. Investments are losing money, but the retiree needs to sell them at low prices just to pay living expenses. As a result, retirement savings decline even faster, and losses are locked in.

This table illustrates the sequence of returns issue for a 65-year-old retiring participant with an account balance of $1,000,000 who takes withdrawals at 5% (inflation-adjusted, assuming a 3% inflation rate). In this hypothetical example, the retiree’s money generates positive returns in 15 out of 20 years, but large losses in the first three years after retirement cause the retiree to run out of money in the 19th year, at age 84. The most current mortality tables say the average life expectancy for a 65-year-old woman is 21.6 years—so, in this scenario, the money doesn’t last long enough for even the average person.1

The timing of the market downturn creates the retiree risk. The sequence in which the losses occur impacts the retiree’s ability to recover from the loss. The worst “sequence” is a bear market that occurs at or just after retirement. Since the market is unpredictable, retirees need to guard against such a scenario.

Help make retirement income last

The sequence of returns risk facing lasting retirement income may be unpredictable, but it can be managed. Continue reading these articles to learn more about how you can help your participants by offering an in-plan guaranteed income solution.

To find out how Lincoln Secured Retirement IncomeSM solutions can help meet your participants’ needs, call our Sales Desk at 855-533-2170 or learn more at

Hypothetical example of sequence of returns risk

Age Year in retirement Withdrawal (at 5% with 3% inflation) Investment gains/ losses Balance
65       1,000,000
66 1 50,000 -17% 780,000
67 2 51,500 -15% 611,500
68 3 53,045 -9% 503,420
69 4 54,636 16% 529,331
70 5 56,275 10% 525,988
71 6 57,964 12% 521,142
72 7 59,703 7% 508,621
73 8 61,494 -5% 421,696
74 9 63,330 7% 387,876
75 10 65,239 19% 396,334
76 11 67,196 9% 364,808
77 12 69,212 18% 361,262
78 13 71,288 -1% 286,362
79 14 73,427 8% 235,844
80 15 75,629 9% 181,440
81 16 77,898 17% 134,387
82 17 80,235 15% 74,309
83 18 82,642 19% 5,786
84 19 - 5% 0
85 20 - 15% 0

This hypothetical example is not indicative of any product or performance.

1Social Security Administration, “Calculators: Life Expectancy,” .  

Lincoln Secured Retirement IncomeSM solutions are offered as a group variable annuity. Amounts contributed to the annuity contract are invested in the LVIP Global Moderate Allocation Managed Risk Fund, a fund of funds with a balanced allocation. The guarantee is provided by a contract between the client/plan sponsor and Lincoln National Life Insurance Company that provides a plan participant with guaranteed annual retirement income.


Lincoln Investment Advisors Corporation manages the LVIP Global Moderate Allocation Managed Risk Fund with consulting services from Wilshire Associates Inc. and Milliman Financial Risk Management LLC.

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A group variable annuity is a long-term investment product designed particularly for retirement purposes. Group annuities contain both investment and insurance components and have fees and expenses, including administrative and advisory fees. The annuity's value fluctuates with the market value of the underlying investment option, and all assets accumulate tax-deferred. Withdrawals may carry tax consequences, including possible tax penalties.

The target date is the approximate date when investors plan to retire or start withdrawing their money. Some target-date models make no changes in asset allocation after the target date is reached; other target-date models continue to make asset allocation changes following the target date. The principal value is not guaranteed at any time, including at the target date. An asset allocation strategy doesn't guarantee performance or protect against investment losses.

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