Can Sequence of Returns Risk be Avoided?

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“Sequence of returns” (which I’ll refer to as SoR) and the associated risk of how they affect retirement withdrawal plans are a common subject of discussion. SoR entails the risk, with respect to retirement withdrawals, of running out of money before the end of the retirement span. If you go to and search for “sequence of returns,” you’ll find some excellent videos that explain the concept.

Unfortunately, there is little mention of how to avoid SoR risk. You will find things like “guard rail” systems and other methods that try to react to market changes, but they are arbitrary and hard to follow. Plus, they only try to reduce the risk and don’t necessarily avoid it.

It turns out, however, that SoR Risk can totally be avoided. It entails using the doublebucket® (DB) method. Instead of trying to avoid running out of money, the DB method drains down exactly to zero at the end of the retirement span. It does so by starting with an aggressive asset mix that slowly becomes more conservative until it only has cash in the last year or two. In that way, it guarantees that principal will never run out. If 30 years is too short, you can extend it to 35 years or more. The method doesn’t care; it will do the math based upon your time frame. Extending the time frame does mean that withdrawals will be less; but surprisingly, it will not be as much as you might think. That’s because the funds used to finance those latter years can be in higher risk investments, which cost little in today’s dollars.