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Michael M. Santiago \/ Getty <\/p>\n Michael M. Santiago \/ Getty <\/p>\n
Moneywise and Yahoo Finance LLC may earn commission or revenue through links in the content below.<\/p>\n
For decades, the 4% rule has been a golden standard for many retirement planners. And there\u2019s a good reason for it.<\/p>\n
The math behind it is simple: Take your annual spending, multiply it by 25 and, at least on paper, you know what you\u2019ll need for retirement. Want to spend $10,000 a month? That\u2019s $120,000 a year, or roughly $3 million in savings.<\/p>\n
Simple, but also potentially misleading.<\/p>\n
That\u2019s because the 4% rule is based mostly on an assumption that long-term average returns of the stock market are stable, overlooking the impact just one bad market downturn can have early in your retirement.<\/p>\n
In other words, you\u2019re leaving yourself vulnerable to sudden and dramatic swings in the market. Indeed, if you experience just one market downturn early enough, it could derail the rest of your retirement journey.<\/p>\n
Financial experts call it the sequence of returns risk.<\/p>\n
Here\u2019s why it could spoil your whole retirement \u2014 and three tips to keep you out of the red in your golden years.<\/p>\n
The sequence of returns risk can be devastating, but it is still often \u201coverlooked and misunderstood\u201d by retirees, according to MassMutual (1).<\/p>\n
But what is it, exactly?<\/p>\n
In simple terms, it is the risk that a market downturn hits you early in retirement, compelling you to withdraw from your portfolio. The impact of withdrawing from a portfolio that is already beaten down leaves you with permanently less capital to depend on for the rest of your retirement.<\/p>\n
For instance, let\u2019s say you retire with exactly $3 million and want to withdraw 4% of it each year. However, your portfolio is entirely invested in the stock market, which suddenly declines 20% in the first year of your retirement. By the end of that year, your nest egg has shrunk to $2.4 million.<\/p>\n
That\u2019s already a loss of $600,000, but you\u2019ve also withdrawn $120,000 during the year, so your nest egg has shrunk further \u2014 down to $2.28 million.<\/p>\n
A loss of nearly three-quarters of a million in one year is not an easy hole to crawl out of.<\/p>\n
In fact, this first-year loss could even be a permanent scar on your portfolio. That\u2019s because even if the market normalizes and delivers a steady and reliable 7% annual return beyond this point, your portfolio would be worth only $2.75 million by the tenth year, still below your starting point.<\/p>\n
This is why sequence of returns risk can be such a hidden trap, forcing you to breach the 4% rule of thumb every year during this period.<\/p>\n
However, there are ways to combat this risk if you plan ahead. Here are three tips to stay ahead of the sequence of returns risk.<\/p>\n
Read More: I\u2019m almost 50 years old and don\u2019t have retirement savings. Is it too late to catch up?<\/a><\/p>\n Read More: Non-millionaires can now invest in this $1B private real estate fund starting at just $10<\/a><\/p>\n One easy way to stay ahead of the curve is to make the most of what is certain to come in.<\/p>\n For many seniors, this is their Social Security benefits, which are not tied to stock prices and are not generally impacted by changes in the market. They provide a steady monthly income without much risk.<\/p>\n As of January 2026, the average monthly payout is $2,071, according to the Social Security Administration (2). And while it isn\u2019t the full $10,000 you might want in a month, it can make a sizable difference.<\/p>\n In fact, 27% of retirees depend solely on Social Security benefits for their income, while they accounted for more than half of the total income for 67% of beneficiaries, as of 2024 (3).<\/p>\n In other words, this guaranteed source of income lets you meet at least a portion of your monthly needs.<\/p>\n But it requires close management of your finances.<\/p>\n If you want to make sure you\u2019re safely managing your retirement savings and Social Security benefits, it could pay to speak to a qualified financial advisor.<\/p>\n But hiring an advisor can be a lifelong commitment, which might make or break your retirement. That\u2019s why finding reliable advisors is crucial.<\/p>\n That\u2019s where Advisor.com<\/a> comes in. Their platform connects you with licensed financial professionals in your area who can provide personalized guidance.<\/p>\n A professional advisor<\/a> can also help you determine how many years you have left to invest before retirement and assess your comfort level with market fluctuations \u2014 two key factors in building the right asset mix for your portfolio.<\/p>\n Through Advisor.com, you even can schedule a free, no-obligation consultation<\/a> to discuss your retirement goals and long-term financial plan.<\/p>\n While there are good reasons behind its existence, the 4% rule is not fixed in stone \u2014 you can always bend it a bit.<\/p>\n For example, if you expect to collect about $2,000 a month from Social Security and use $8,000 in withdrawals from your portfolio, the rule of 4% would suggest you need a nest egg worth $2.4 million for $10,000 in monthly expenses. However, aiming for just 15% more, or about $2.76 million, should give you a comfortable buffer to withstand market turmoil and unexpected losses.<\/p>\n Simply put, you can stay below the 4% withdrawal rule and worry less about market crashes if you just save a little more than you actually need.<\/p>\n Another way to bend the rule is to hedge your bet against market crashes by having the right diversification mix in your portfolio.<\/p>\n And there\u2019s one asset that shines brighter than the rest: Gold is a great store of value that preserves your nest egg against both inflation and unstable stock market conditions. In fact, when the stock market is shaky, gold tends to shine \u2014 as its record-breaking climb in January 2026 shows (4).<\/p>\n Better yet, investing in gold has become easier than ever with Priority Gold<\/a>, which offers you the chance to cash in on significant tax advantages by opening a gold IRA.<\/p>\n Gold IRAs allow investors to hold physical gold or gold-related assets within a retirement account, which combines the tax advantages of an IRA with the protective benefits of investing in gold<\/a>, making it an attractive option for those looking to potentially hedge their retirement funds against market downturns.<\/p>\n To learn more about how Priority Gold can help you reduce inflation\u2019s impact on your nest egg, download their free 2026 gold investor bundle<\/a>.<\/p>\n If bending the 4% rule isn\u2019t enough for you, you could also try a bucket income strategy.<\/p>\n The strategy is simple: You divide your retirement into several \u201cbuckets\u201d based on your spending needs over different periods of time \u2014 for example, short-term (1 to 3 years), medium-term (4 to 10 years) and long-term (10+ years) \u2014 then adopt separate investment strategies for each.<\/p>\n This may mean keeping some cash in highly liquid money market funds for short-term spending needs, while investing in robust bonds, government treasuries and fixed-income assets to meet medium-term needs. The rest can be invested in the stock market for long-term growth, giving your money more time to recover from any downturns and grow uninterrupted by withdrawals.<\/p>\n Creating these different buckets has many advantages, but perhaps the biggest one is it lets you maintain stability through different phases of your retirement, helping you establish a better budget (5).<\/p>\n However, managing these buckets may seem daunting at first. That\u2019s why an excellent way to track your portfolio and income is to keep all your investments \u2014 including bonds, treasury certificates, ETFs and stocks \u2014 under one roof.<\/p>\n That\u2019s where SoFi comes in.<\/p>\n SoFi\u2019s easy-to-use DIY investing platform lets you buy stocks, ETFs<\/a> and more with no commission fees and no account minimums.<\/p>\n SoFi is designed for both beginners and seasoned investors, with real-time investing news, curated content and the data you need to make smart decisions about the stocks that matter most to you.<\/p>\n Plus for a limited time you can get up to $1,000 in stock<\/a> when you fund a new account.<\/p>\n Join 250,000+ readers and get Moneywise\u2019s best stories and exclusive interviews first \u2014 clear insights curated and delivered weekly. Subscribe now.<\/a><\/p>\n We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines<\/a>.<\/p>\n MassMutual (1<\/a>); Social Security Administration (2<\/a>); Senior Citizens League (3<\/a>); BBC (4<\/a>); U.S. Bank (5<\/a>)<\/p>\n This article provides information only and should not be construed as advice. It is provided without warranty of any kind.<\/p>\n","protected":false},"excerpt":{"rendered":"Michael M. Santiago \/ Getty Moneywise and Yahoo Finance LLC may earn commission or revenue through links in…\n","protected":false},"author":2,"featured_media":313999,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[14],"tags":[72,1890,176,61,60,127669,174,175,7814,1830,1615,2234],"class_list":["post-313998","post","type-post","status-publish","format-standard","has-post-thumbnail","category-personal-finance","tag-business","tag-dave-ramsey","tag-finance","tag-ie","tag-ireland","tag-market-downturn","tag-personal-finance","tag-personalfinance","tag-portfolio","tag-retirement-savings","tag-social-security","tag-stock-market"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts\/313998","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/comments?post=313998"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts\/313998\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/media\/313999"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/media?parent=313998"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/categories?post=313998"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/tags?post=313998"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}