The market falls 20% in the first year after you retire. Your expenses do not fall with it. Groceries, insurance premiums, property taxes, travel to see family, and the commitments that give your life meaning still need funding. That is why sequence retirement withdrawals deserve more attention than a single average-return assumption. The order in which market returns occur can shape how long your money lasts, especially once you begin drawing income.
For people who have spent decades serving, saving, and preparing for the next chapter, this risk can feel deeply unfair. You did the work. You built the accounts. Yet a difficult market at the wrong moment can place pressure on a retirement plan that looked solid on paper.
The answer is not to retreat from life, abandon investing, or wait forever to retire. It is to plan with clear eyes, practical guardrails, and a purpose strong enough to guide decisions when headlines get loud.
What sequence retirement withdrawals really means
Sequence risk, often called sequence-of-returns risk, is the risk that poor investment returns arrive early in retirement while you are taking withdrawals. When that happens, you may sell investments after they have declined in value. Those shares are no longer available to recover when markets eventually rebound.
Consider two retirees with the same starting portfolio, the same long-term average return, and the same annual spending need. One experiences strong returns in the early years and weaker returns later. The other gets the opposite pattern: early losses followed by later gains. The average may be identical, but the second retiree can end up with substantially less because withdrawals occurred while the portfolio was down.
This is not a reason to predict markets. No one can reliably do that. It is a reason to recognize that retirement is different from the accumulation years. While you were working, a market decline could be unpleasant but also an opportunity to keep contributing. Once your paycheck stops, your portfolio may need to provide part of your paycheck.
For veterans and military families, retirement income may include a pension, military retired pay, VA disability compensation, Social Security, or a civilian 401(k) and IRA. That can create an important base of reliable income. But it does not eliminate sequence risk if investments still must cover discretionary spending, health care gaps, survivor needs, or the goals that make retirement fulfilling.
Why early losses can do lasting damage
A simple example makes the issue clear. Imagine a $1 million portfolio that falls 20% to $800,000. If you also need to withdraw $50,000 for living expenses, the remaining balance is $750,000. A future market recovery helps, but it now has to work from a smaller base.
The challenge is not only mathematical. Early losses can push people into decisions made from fear: moving everything to cash after a decline, canceling meaningful plans, or withdrawing too much because inflation has raised everyday costs. These reactions are understandable. They can also turn a temporary market decline into a permanent change in lifestyle.
This is where retirement planning must go beyond a spreadsheet. Your spending is not one number. Some expenses are essential. Others are flexible. Some are connected to the life you want to live: supporting grandchildren, volunteering, travel, starting a second-act business, or participating in a community that matters to you. Knowing the difference gives you more options when markets are unsettled.
Build withdrawal guardrails before you need them
A resilient retirement plan does not promise that markets will behave. It prepares you to respond without abandoning your mission. At MFPA Financial Planning, that starts with seeing your full situation clearly, creating a plan around your priorities, and acting with discipline when conditions change.
Create a dependable income floor
Start by identifying the expenses that must be paid regardless of market conditions: housing, food, utilities, insurance, basic transportation, debt obligations, and core health care costs. Then compare those expenses with dependable income sources, such as Social Security, pensions, annuity income where appropriate, military retirement pay, or other contractual income.
The goal is not necessarily to cover every dollar of spending with guaranteed income. That approach can be costly or unnecessarily restrictive for some households. The goal is to understand how much of your essential life depends on portfolio withdrawals. The smaller that gap, the more flexibility you may have during a market downturn.
Separate near-term spending from long-term growth
A retirement portfolio should not be treated as one undifferentiated pile of money. Many retirees benefit from holding enough conservative, accessible assets to cover a planned period of withdrawals. That may include cash, money market funds, Treasury securities, or other high-quality short-term holdings suited to the household’s needs.
This reserve is not meant to earn the highest possible return. Its purpose is to reduce the chance that you must sell long-term investments after a sharp decline. The appropriate amount depends on your income sources, spending flexibility, tax situation, and comfort with market volatility. Holding too much cash can create its own problem: inflation steadily erodes purchasing power.
A thoughtful plan balances both realities. You need liquidity for the next few years and growth potential for the decades that may follow.
Use flexible spending, not blind spending cuts
A fixed withdrawal number can be easy to understand, but life is not fixed. A better approach for many retirees is to establish spending guardrails. When portfolio values are healthy, you may have room for inflation adjustments, travel, gifts, or experiences that support your vision for retirement. When markets are down significantly, you temporarily reduce the more flexible categories.
That does not mean living in deprivation every time the market has a bad quarter. It means deciding in advance what can pause without harming your well-being. Perhaps it is a major home project, a new vehicle, a large gift, or one ambitious trip. Perhaps it is not your weekly lunch with friends, fitness program, or the volunteer work that gives your week structure.
The best guardrails protect both financial security and the life you are trying to preserve.
Coordinate withdrawals with taxes and required distributions
Where you take money from matters. Withdrawals from traditional IRAs and 401(k)s are generally taxable. Roth account withdrawals can be tax-free when qualified. Taxable brokerage accounts may offer different flexibility, depending on gains, losses, and cost basis.
A poor withdrawal sequence can create unnecessary taxes, increase Medicare premium surcharges, or leave you with fewer options later. Required minimum distributions can further complicate the picture once they begin. This is why withdrawal planning should be coordinated with tax planning rather than treated as a yearly afterthought.
The right order will vary. A retiree with a large traditional IRA may benefit from purposeful withdrawals or Roth conversions before required distributions begin. Another household may need to preserve certain assets for later-life care, charitable giving, or a surviving spouse. Personal facts matter more than a one-size-fits-all rule.
Do not let inflation quietly set the agenda
Sequence risk and inflation often arrive together as a difficult combination. Markets may struggle while food, housing, insurance, and medical costs rise. If your retirement plan assumes every expense will increase at the same rate, it may miss the real pressure points.
Review spending in categories. Health care and long-term care deserve special attention. So do housing repairs, travel costs, and family support. Medicare premiums, prescription costs, and possible caregiving needs can change over time, particularly for couples whose income changes after the first spouse dies.
A plan built for resilience includes room for these realities. It also includes regular review. Retirement planning is not a document you complete at age 62 and ignore for 30 years.
Protect the purpose behind the money
The fear of running out of money can cause people to postpone retirement indefinitely or spend so cautiously that they never fully enter the life they saved for. That is a different kind of risk.
Your plan should answer more than, “Can I afford to retire?” It should also ask, “What am I retiring toward?” For many veterans, the transition from a role defined by service, leadership, and shared mission requires intentional thought. Financial security supports that transition, but it cannot replace purpose.
Name the activities, relationships, service opportunities, and personal goals that matter most. Then give your spending plan a mission. When difficult markets occur, you will be better able to distinguish between a temporary adjustment and a sacrifice that cuts into the heart of your retirement.
Market cycles will come and go. A well-designed withdrawal strategy gives you the confidence to respond with discipline while continuing to build a retirement defined by security, service, and meaning.