Sequence of Returns Risk
The danger that poor investment returns early in retirement permanently damage a portfolio, even if average returns are fine.
Sequence of returns risk is the risk that the order of your investment returns — not just their average — determines whether your money lasts. Two retirees can experience the identical average return over 30 years and end up with wildly different outcomes if one happens to hit a market crash in the first few years.
The reason is withdrawals. When you're spending from a portfolio, a down market early on forces you to sell more shares at low prices to fund the same lifestyle, locking in losses on a shrinking balance that then has less left to recover. The same crash late in retirement, after years of growth, does far less damage.
This is why the years right around your retirement date are the most fragile, and why strategies like holding a cash buffer, keeping a flexible spending plan, or using a more conservative withdrawal rate exist — they're all ways to reduce the harm a bad early sequence can do.
This definition is general information to help you understand a term, not financial, tax, or legal advice. Figures that change year to year (limits, thresholds, rates) should be confirmed against current official sources. For guidance on your situation, a licensed fee-only fiduciary is the right next step.