What is Sequencing Risk in Early Retirement - with Practical Examples

Sequencing risk defines that the order of returns being more significant when you are withdrawing rather than accumulating. A market downturn early in retirement can cause a portfolio to run out, even if average long-term returns are the same. Definitions Sequencing risk is the term that covers the order or sequence of returns impacting the success rate of your withdrawals in retirement. Why this matters After investing for the long term and building up a nice retirement pot, you’ve decided to pull the trigger and quit your job. You’ve banked your last payday and it’s now time to withdraw from your ISA or pension however there as been a world event, or a bad earnings call, and the market has seen a big sell off and has dropped in value. Your retirement pot may have lost a huge a chunk putting at risk your plans. Practical Example Lets dive in to a practical example. Lets assume you are 52, have £300k invested a global index fund within an ISA and you plan to withdraw, tax free of…