Protecting Your Nest Egg: Managing Sequence of Returns Risk with Volatile Markets
You're missing out if you don't have a complete investment plan.
Let's talk and make sure you're making every dollar work for you.
You’ve worked for decades to build your retirement savings, and now comes the most important part: turning those assets into a steady income stream. But what if the market turns against you right as you begin withdrawing? This scenario—known as sequence of returns risk—can be one of the most dangerous threats to your retirement plan.
Unlike simple market fluctuations, the sequence of returns risk highlights that when you take money out, it matters just as much as how much you take out. A sharp downturn during a bear market early in retirement, combined with steady withdrawals, can shrink your portfolio faster than expected—potentially jeopardizing long-term income security.
At Goldstone Financial Group, we help clients prepare for these challenges with smart income planning and risk management strategies designed to help protect their nest egg, even when markets are unpredictable.
Understanding Sequence of Returns Risk
Sequence of returns risk occurs when a retiree experiences negative market returns in the early years of retirement while simultaneously taking withdrawals, which can hinder achieving positive returns. This double impact makes it harder for the portfolio to recover when markets rebound, as fewer assets remain invested to grow.
Consider two retirees with identical average annual returns over a long retirement of 30 years. If one experiences strong returns early and downturns later, they may outlive their portfolio. If the other experiences losses in the first few years, even the same average return may not be enough to sustain withdrawals. Timing can make all the difference.
Why Market Volatility Raises the Stakes
In today’s environment, retirees face heightened uncertainty. Market swings driven by inflation, interest rate changes, or geopolitical events can cause unexpected portfolio losses. When combined with regular withdrawals for living expenses, the impact compounds quickly.
That’s why income planning can’t be one-size-fits-all. Protecting against sequence of returns risk requires both structural safeguards and flexible withdrawal strategies that adapt to market conditions.
The Bucket Strategy for Stability
One effective method is the bucket strategy, which divides assets into time-based segments:
- Short-term bucket: Cash and low-risk bonds to cover near-term expenses, usually two to three years.
- Mid-term bucket: Moderate investments for the next five to ten years of withdrawals.
- Long-term bucket: Growth-oriented assets designed to outpace inflation over the long run.
This approach provides retirees with stable funds for immediate needs while keeping long-term assets invested for growth, reducing the pressure to sell during downturns.
Guardrails to Balance Withdrawals
Another strategy is using withdrawal guardrails—flexible spending rules that adjust based on portfolio performance. Instead of withdrawing a fixed percentage every year, retirees can increase spending when markets are strong and reduce it slightly when markets are weak.
This disciplined approach prevents over-spending in good years while protecting the portfolio during market declines. Over time, it helps smooth out retirement income without requiring drastic lifestyle changes.
Guard Spend Protocols for Flexibility
For those seeking more nuanced control, guard spend protocols combine spending rules with dynamic portfolio monitoring. Retirees set clear guidelines: a target withdrawal amount, a lower guard (minimum essential spending), and an upper guard (maximum sustainable spending).
If the portfolio performs well, retirees may allow themselves to enjoy more discretionary spending. If markets falter, they can scale back temporarily, preserving the nest egg for long-term security.
Integrating Income Planning with Risk Management
While these strategies help, the true key lies in building a holistic retirement plan that blends risk management with income security. This includes:
- Creating a sustainable withdrawal plan tailored to your lifestyle.
- Balancing guaranteed income sources—such as Social Security, pensions, or annuities—with market-based accounts.
- Adjusting asset allocation as your needs evolve, rather than sticking to static models.
At Goldstone Financial Group, we design customized income strategies using our Retirement Roadmap™ process. This approach ensures your nest egg isn’t left vulnerable to market volatility but positioned to help deliver confidence and stability.
Why Planning Ahead Matters
Sequence of returns risk is not about predicting the markets—it’s about preparing for uncertainty. By implementing structured withdrawal systems, diversifying income streams with a mix of investments, and staying disciplined through volatility, retirees can potentially reduce the risk of depleting their savings too early.
The earlier you start addressing these challenges, the more resilient your retirement income becomes. Whether you’re already retired or approaching that transition, now is the time to evaluate your strategy and protect your nest egg from avoidable risks.
Conclusion – Confidence in Any Market
Volatile markets are a fact of life. But sequence of returns risk doesn’t have to derail your retirement dreams. With thoughtful retirement income planning—whether through buckets, guardrails, or guard spend protocols—you can create a retirement income strategy that weathers downturns and thrives in upswings.
At Goldstone Financial Group, we specialize in building income plans that balance growth, security, and flexibility. By integrating risk management directly into your retirement strategy, we help ensure that your savings provide for the life you’ve worked so hard to achieve.
Ready to safeguard your nest egg? Contact Goldstone today to explore your personalized retirement income strategy and gain the confidence to retire on your terms.
Disclosure:
Goldstone Financial Group, LLC (“GFG”) is a registered investment advisor with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or qualification. This material is provided for informational purposes only. Opinions expressed herein are solely those of GFG. None of the information presented in this material is intended to offer personalized investment advice and does not constitute an offer to sell or solicit any offer to buy a security or any insurance product and is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation. The information contained herein has been obtained from sources believed to be reliable but accuracy and completeness cannot be guaranteed by GFG