I want to share how I think about 'sequence of returns risk' because it's the most important retirement planning concept most people in accumulation don't think about.

Sequence of returns risk is the danger that a market crash early in your retirement will permanently impair your portfolio even if long-term returns are fine. If you retire into a 40% market drop and must sell assets at low prices to fund spending, you permanently reduce the pool that will recover. The recovery benefits you less than it would have if you hadn't been forced to sell.

A person who retires at the beginning of a bull market with a 4% withdrawal rate will almost certainly be fine. A person who retires just before a significant bear market may deplete their portfolio within 20-25 years even with the same initial balance and withdrawal rate.

The mitigations: flexible spending (cut discretionary in bad years), a cash or short-term bond bucket to fund 1-2 years of spending without selling equities during a crash, and if possible a small amount of guaranteed income (Social Security, annuity, pension) that reduces the required withdrawal rate.