Definition
The risk that bad market years arrive early in retirement, while you are withdrawing, and permanently shrink the portfolio. Two retirees can earn the same average return over 30 years and end up in wildly different places depending on the order of the good and bad years.
Why it matters
Averages hide the danger: selling shares into a crash to fund living expenses locks in losses the recovery never repairs. It is the main reason retirees hold cash buffers and bonds even when stocks return more on average.
Example
Two retirees each start with $1,000,000 and withdraw $40,000 a year. One hits a 30% crash in year one and is selling shares near the bottom; the other gets the same crash in year fifteen. Same average return, but the early-crash portfolio can run out a decade sooner.
Put it into practice
Related terms
This definition is educational, not financial, legal, or tax advice. U.S. rules and limits change; verify time-sensitive details with official sources. See our disclaimer.