The Two Risks That Break Retirement Plans

Ask people what could wreck their retirement and most will say a market crash. That's half right. The full answer is two intertwined risks — and the second one is the quiet killer, because it can do severe damage even in a decade where the market's average return looks perfectly healthy.

Risk one: downside markets, met with withdrawals

A 20% decline turns a $1,000,000 portfolio into $800,000 — painful for anyone. But an accumulator can simply wait; a retiree drawing income cannot. If you still need your $40,000 this year, you're now withdrawing 5% of a smaller pot, selling shares at depressed prices to do it. Every share sold in a downturn is a share that can't participate in the recovery. Add inflation running alongside — as it did in 2022, when stocks and bonds fell together — and the real damage compounds.

Risk two: the order of returns

Here's the counterintuitive one. Two retirees can earn identical returns over identical years, withdraw identical dollars, and end up in wildly different places — purely because of the order in which those returns arrived. Losses that land early in retirement, while withdrawals are running, do damage that later gains can't fully repair.

Same math, roughly a $192,110 difference — and the unlucky retiree did nothing wrong except retire into a bad stretch. That's sequence-of-returns risk, and it's why retiring into a bear market is statistically the most dangerous thing that can happen to a withdrawal-funded plan.

What actually defuses these risks

• Segment money by job. Keeping several years of spending in stable assets means bad markets don't force selling — the growth portfolio gets time to recover.
• Build a guaranteed income floor. Social Security — especially when timing is optimized — plus, for some households, pension or guaranteed-income products can cover essentials so markets only ever threaten the "wants," never the "needs."
• Flex the withdrawals. Plans that trim spending modestly after bad years and raise it after good ones dramatically outlast rigid ones.
• Right-size the equity risk. The goal isn't maximum growth in retirement — it's the highest return achievable at a level of risk your income plan can absorb.