Sequence of Returns Risk
Also known as: Sequence Risk, Order of Returns Risk, Retirement Risk
The risk that poor investment returns early in retirement can permanently impair a portfolio despite good later returns.
Detailed Explanation
Sequence of Returns Risk is the danger that the order of investment returns matters critically during the withdrawal phase of retirement. Poor returns in the first few years of retirement, combined with ongoing withdrawals, can deplete the portfolio to a point where subsequent good returns cannot restore the original purchasing power. This risk is particularly acute for Indian retirees who may need their corpus to last 25-30 years with limited social security support.
Related Calculators
Related Terms
Withdrawal Rate
The percentage of retirement portfolio withdrawn annually to fund living expenses.
Drawdown
The decline in investment value from peak to trough, or the process of making systematic withdrawals from investments.
Decumulation
The process of systematically spending down accumulated wealth during retirement to fund living expenses.