Sequence Risk

Sequence risk of returns also known as Sequence Risk can be one of the biggest risks in Early retirement. It is primarily the order in which the investment returns are received. The risk of market crashing right at the beginning of your retirement can have a great impact on how long your retirement assets will last.

Lot of our readers and we ourselves have always worried about such an event- what if things go wrong at the end of our investment journey or right at the start of the early retirement. We had no idea that our worry also has a financial term 🙂 – Sequence Risk.

Good thing is that now our and your worry has a name. We may find a solution for it as well.


What is Sequence Risk of Returns?

Most Early retirees have a significant part of their retirement portfolio invested in Equity Markets. Reason being that over a period of time equities have given inflation-beating returns. But these return assumptions are averaged over a period of time. This you may already know and we have also written about it in 12% return from stock market every year?. Returns from Equity markets are not Fixed returns like FD’s. In Equities one year you may get 25% returns (like 2015) and another year get negative returns of -38% (2009). The problem is we have no way of knowing which year will be up or which year will be down. And that is the biggest challenge. No one knows in which sequence market returns will occur. Also called as Sequence risk of returns or Sequence Risk.

Sequence Risk reduces your Retirement Portfolio

Sequence risk is the biggest risk for Early Retiree, not because the market will crash, as eventually markets do recover. But because of the fact that you will face your worst returns at the beginning of your portfolio. Withdrawing money during a significant down market early in your retirement has the tendency to create a situation where there is not enough remaining in the portfolio to participate in the recovery process and put the retiree back in a financially secure position.

Sequence Risk’s Impact Explained with an Example

Let’s go further with an example: Picking up a thread from our blog post Safe Withdrawal Rate- How long will your money last in retirement where we simulated an early retirement portfolio of 50/50 Equity and Debt and tested it under different assumptions. If you have not read that blog do read it before continuing with this post.

In this post we will take forward one of those assumptions. Put it through some extreme market volatility to understand how bad can things go.

  • We assumed that the person retired in year 1996, with corpus of 3 crore. He withdrew inflation-adjusted expenses from his  portfolio irrespective of the equity markets highs and lows.
  • In that example the retirement corpus lasted for 40 years.(refer the excel below).

However, Things would be very different for someone if the starting year market gave negative returns. So, for this experiment we replaced 1997 returns with below negative returns:

  • -4% (same as year 1999) same 3 corpus lasted 39 years.
  • -28% (same as year 2001) same 3 corpus lasted 32 years.
  • -38% (same as year 2009) same 3 corpus lasted 30 years.

Originally published in blog post: Safe Withdrawal Rate- How long will your money last in retirement

Disclaimer: In the above Excel sheet, we have used actual data for returns & inflation from BSE & RBI only to simulate dynamic returns and not for any other purpose.


These results are disturbing, no sugar coating there. Imagine you are all set to retire early in XYZ year and the same year market dips and reduces your asset value. Forcing you to either cut your expenses, or postpone your retirement date till markets recover.

This is a possibility every Early retiree should be prepared for mentally. No one can control or predict the sequence in which market returns will happen. And that is the biggest curve ball markets can through at early retiree’s plan.

List of all market crashes in India. 

In the next blog post we will explore what options do an Early retiree have when something like this happens. Ultimately being prepared for Early retirement is the idea behind this blog.

If you have already thought about Sequence Risk and have some tips under your sleeves. Feel free to share them with us in comments. We would love to hear form you.

Lastly, Shout-out to any Tax experts reading this blog and is interested to help us. We want help with working out the tax implication on few dummy ER portfolios. Please get in touch with us. We would really appreciate your help.

As you guys know after sequence Risk, Tax is the biggest unresolved piece we have to work out.

We have already written about How much money I need to Retire Early In India and Safe Withdrawal Rate- How long will your money last in retirement. If you have not read them, we highly recommend you to do read them.


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  1. Hi,
    I was looking at the published inflation rate and I guess the same has been used in this calculation. While if we look at actual inflation from the website the inflation seems to be less if you exclude real estate. The other expenses don’t rise as per inflation numbers. Is it possible to generate a household inflation number?

  2. Honestly, I think Sequence Risk is one of the last things I worry about and I believe it’s one of the last things early retirees need to worry about. Regular retirees are a different matter but we’ll come to that.

    Here’s the reasons
    1. Early retirees (and here I mean retirees before 50) have the flexibility to come back into the job market even if not fully. We’ll be young enough and our skills current enough to be useful to recover if we’re hit by say the storm of 2009 early and by that I mean 2-3 years into our retirement.

    2. Early retirees are used to living within our means. Saving significant percentages of income is a habit. We should therefore be able to know how to pare down our expenses if we take an investment hit

    3. Early retirees are inherently careful. For all the talk of the 25X and 4% rule, I doubt there’s hardly anyone who retires the moment they hit it precisely based on current spending. All of us look to build in some buffer which should give us a little more confidence

    4. Early retirees are usually more savvy about their investment strategy – buckets, holding on and not panicking during downturns etc.

    On the other hand, regular retirees definitely need to be more concerned. They usually, atleast in India, don’t have the option of coming back into the workforce, are usually less planned and organised and don’t have things quite so worked out. I’d definitely worry about them with the kind of longevity we’re seeing nowadays

  3. I believe the concept of cash cushion is a likely way to weather the storm?🤔Not posting too much if you guys are indeed planning on elaborating these ideas in future articles. 😊

    • Hi AMH,

      We have to run some scenarios in excel to see how that pans out. So keep tuned in! Feel free to add your inputs, we will use them in the blog post.

  4. Great article,as always! Sequential risk is what most people (mostly unknowingly) like to wave as a red flag in front of the whole FIRE community,esp if you are RE ing 😓.This does play into the secret fears of the inner pessimists in most of us.But what most people conveniently forget is that crashes like what we saw in 2008 doesn’t just affect the ‘new fangled ‘ stock investors.It is a siren call that is going to affect the whole economy.All those traditional FD s are being paid off the performance of markets ye know.not to mention the possibility of dropping interest rates for deposits and increase in loans that the government might impose to manage inflation!

    Not to fear monger,but the fall of markets have far reaching consequences than what we might naively believe.One could argue that in such a situation,the well prepared planners might just be in a better position than the average citizen who is dependent on 1 or 2 person income.

    The tenets of saving as much of your income to prepare holds good here as not only would you have better protection but would also likely not feel the squeeze of forceful downsizing in the everyday life that such calamities might warrant

  5. I think, you should have a separate portfolio within your retirement portfolio which needs to be touched only in last 10/15 years of retirement. this separate portfolio should be transferred to largecap/balanced funds on your retirement, rest all in debt funds / fd’s. On 13/18 years before retirement this portfolio for last 10/15 years should be transferred gradually to debt funds / FD’s etc.

  6. one of strategy that you can employ is to start shifting your corpus from equity to debt as you approach your retirement goal. Ensure that you at least have 2 years of your post retirement expenditure in debt as you approach retirement.

    • Hi Manish,
      The example in the article has a 50/50 debt/equity portfolio at the start of the retirement. So that translates into much more of your retirement fund in debt at the beginning of your retirement.

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