Sequence Risk


DEFINITION of 'Sequence Risk '

The risk of receiving lower or negative returns early in a period when withdrawals are made from the underlying investments. The order or the sequence of investment returns is a primary concern for those individuals who are retired and living off the income and capital of their investments.

BREAKING DOWN 'Sequence Risk '

It is not just long-term average returns that impact your financial wealth, but the timing of those returns. When retirees begin withdrawing money from their investments, the returns during the first few years can have a major impact on their wealth.

Two retirees with identical wealth can have entirely different financial outcomes, depending on when they start retirement. A retiree starting out at the bottom of a bear market will have better investing success in retirement than another starting out at a market peak, even if the long-term averages are the same.

  1. Derivative

    A security with a price that is dependent upon or derived from ...
  2. Withdrawal Plan

    1) A payment structure arranged with a mutual fund in which the ...
  3. Systematic Withdrawal Plan - SWP

    A service offered by a mutual fund that provides a specific payout ...
  4. Underlying

    1. In derivatives, the security that must be delivered when a ...
  5. Dynamic Updating

    A method of determining how much to withdraw from retirement ...
  6. Possibility Of Failure (POF) Rates

    The likelihood that a retiree will run out of money prematurely ...
Related Articles
  1. Retirement

    Protecting Your Retirement Assets

    Your golden years are meant to be stress free. Keep them that way by protecting your assets.
  2. Retirement

    5 Tax(ing) Retirement Mistakes

    Don't let these simple errors take the luster off your golden years.
  3. Budgeting

    5 Ways To Stretch Your Retirement Budget

    Living comfortably can be easy if you follow a simple plan.
  4. Retirement

    3 Life Events That Can Ruin Retirement Plans

    Death, divorce and loss of income can leave retirees reeling. Learn how to prepare.
  5. Retirement

    The Top 3 Retiree Worries (And What To Do About Them)

    Discover the most common problems retirees face, and what they can do to solve them.
  6. Retirement

    Find an Affordable Timeshare on a Retiree's Budget

    Vacations can be expensive, especially on a fixed income. These tips will help you buy a share in a getaway property that's not too pricey.
  7. Professionals

    Is Delaying Social Security Until 70 a Good Idea?

    Soon to be retirees are often told it's best to wait until age 70 to collect Social Security. Here's why this is not always the best advice.
  8. Options & Futures

    Pick 401(k) Assets Like A Pro

    Professionals choose the options available to you in your plan, making your decisions easier.
  9. Investing Basics

    5 Things To Ask Before Hiring A Financial Advisor

    Choosing a financial advisor isn't an easy task. Here's a list of the most important things to consider when planning for your financial future.
  10. Retirement

    5 Reasons Why Americans Retire in Malaysia

    Understand why Americans are deciding to retire internationally. Learn about the top five reasons why Americans are retiring to Malaysia.
  1. What are the main kinds of annuities?

    There are two broad categories of annuity: fixed and variable. These categories refer to the manner in which the investment ... Read Full Answer >>
  2. What are the risks of rolling my 401(k) into an annuity?

    Though the appeal of having guaranteed income after retirement is undeniable, there are actually a number of risks to consider ... Read Full Answer >>
  3. How are variable annuities taxed at death?

    If the owner of a variable annuity dies before receiving full payment, his beneficiary must pay taxes on any earnings received. ... Read Full Answer >>
  4. Can dividends be paid out monthly?

    Though it is more common for dividends to be paid quarterly or annually, some stocks do pay monthly dividends. Dividends: ... Read Full Answer >>
  5. What are the best ways to sell an annuity?

    The best ways to sell an annuity are to locate buyers from insurance agents or companies that specialize in connecting buyers ... Read Full Answer >>
  6. Are spousal Social Security benefits taxable?

    Your spousal Social Security benefits may be taxable, depending on your total household income for the year. About one-third ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  2. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
  3. Normal Profit

    An economic condition occurring when the difference between a firm’s total revenue and total cost is equal to zero.
  4. Operating Cost

    Expenses associated with the maintenance and administration of a business on a day-to-day basis.
  5. Cost Of Funds

    The interest rate paid by financial institutions for the funds that they deploy in their business. The cost of funds is one ...
  6. Cost Accounting

    A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step ...
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!