The Retirement Risk That Could See You Outliving Your $1 Million Savings
The accumulation phase of retirement planning conditions savers to a straightforward and unwavering strategy for their entire careers: Contribute as much as you can, as often as you can, and disregard the market’s whims as your returns compound over time.
However, in the run-up to retirement, the very volatility that long-term investors are cautioned to ignore for their entire lives can lead to them outliving their money.
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When making the switch from collecting a paycheck to living off your savings, timing is everything — and near-retirees must shift to a strategy that recognizes the worst nature of the market’s temperament. Unfortunately, many just keep on doing what they’ve always done and don’t realize the danger until it’s too late.
You Stayed in for Fear of Missing the Market’s Best Days
As Morgan Stanley noted, buying and holding high-quality stocks for the long term almost always beats trying to time the market. Over time, even most professional wealth managers lose money when they exit and re-enter positions before anticipated downturns and recoveries rather than staying invested through periods of volatility — and the needle is just too thin to thread with any consistency.
A decade of data from JP Morgan Asset Management reveals the high stakes of jumping in and out of the market. If you invested $10,000 in the S&P 500 on Jan. 2, 2006, your balance would have grown to $80,619 by Dec. 31, 2025 — but only if you kept your money in play. Those who missed only the market’s 10 best days during that same period were left with just $35,866 — that’s a loss of 55.51% from fewer than a dozen wrong guesses over the course of a decade.
Plan With a Fear of the Market’s Worst Days in Mind
Stock sages like Warren Buffett cited the best-days dynamic in their repeated pleas with investors to buy and hold for the long term. For near-retirees, however, the biggest danger is the polar opposite — absorbing the market’s equally impactful worst days at just the wrong time.
Charles Schwab outlined a little-known, but hugely consequential, phenomenon for which far too many near-retirees fail to plan. It’s called the sequence-of-returns risk: When a market downturn coincides with the start of retirement, tapping a portfolio that’s losing value early can shatter decades of saving and planning in just a few years.
The Difference Between $400K and Nothing
Schwab calculated the merciless math of the sequence-of-returns risk, which forces new retirees to sell more investments to maintain the same income, leaving them with fewer shares to generate new growth:
Two investors enter retirement with $1 million starting balances.
Each withdraws $50,000 in year 1 and adjusts for inflation at 2% in subsequent years.
Investor 1 suffers a 15% decline in the first two years.
Investor 2 experiences the same 15% downturn in years 10 and 11.
By year 18, Investor 2 has $400,000 remaining.
By year 18, Investor 1 has zero.
Plan Now for a Poorly Timed Portfolio Hit
According to Schwab and Fidelity, cash on hand is the body armor you need to survive the sequence-of-returns risk. By keeping one to two years’ worth of expenses out of the market and in a savings vehicle, you eliminate the risk of being forced to withdraw from a declining portfolio at the worst possible time — early in retirement.
That should be more than enough. Hartford Funds noted the average bear market lasts less than 10 months and is typically followed by an upswing that recovers all losses and delivers new gains. Then, retirees can safely resume scheduled withdrawals from a portfolio that has weathered the sequence-of-returns risk, is now gaining value, and is built to last.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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