How Market Drawdowns Impact Retirement Income More Than You Think
Executive Summary
Market drawdowns hit differently once retirement withdrawals begin. Keith Demetriades explains why the order of returns matters more than average returns, how sequence-of-returns risk permanently damages retirement income, why simply “staying invested” isn’t enough, and what flexibility in retirement planning actually needs to look like to prevent forced decisions during market stress.
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How Market Drawdowns Impact Retirement Income More Than You Think
A lot of people enter retirement believing that staying invested and ignoring headlines will serve them well.
Historically, that’s been good advice. But retirement changes the rules of the game.
While you’re working, a market decline and your retirement portfolio can usually coexist without creating major problems. You’re still earning income. You’re still contributing. You’re still buying investments at lower prices.
But once retirement begins, your portfolio is no longer just growing. It’s now generating income. And that one difference can have a significant impact on how market downturns affect your long-term financial security.
Why do drawdowns hit differently once retirement withdrawals begin?
During your working years, market declines are often more uncomfortable than damaging. You’re still earning income. You’re still contributing to retirement accounts. You’re typically not relying on your portfolio to support your lifestyle. In fact, a market decline can work in your favor because new contributions purchase investments at lower prices.
Basically, time is still on your side.
But retirement removes those advantages. You’re no longer making contributions. You’re no longer adding fresh capital. And now your portfolio has a job: it has to generate income regardless of what the market is doing.
That’s an important distinction because once withdrawals begin, a market downturn becomes more than an investment event. It becomes an income-planning event.
What is sequence-of-returns risk and why does it matter?
When people evaluate portfolios, they often focus on average returns. Seven percent. Eight percent. Nine percent.
But retirement doesn’t happen in averages. It happens year by year. Withdrawal by withdrawal. Market cycle by market cycle.
Imagine two retirees each beginning retirement with a $1 million portfolio. Both experience the same average return over retirement. Both remain invested. Both ultimately participate in the same market environments. Yet one retires into a major bear market while the other experiences that same downturn much later.
The outcomes can be dramatically different.
Why? Because one was taking withdrawals while the portfolio was declining. When withdrawals and market losses happen simultaneously, the portfolio is shrinking from two directions at once. The market is reducing the account balance, and withdrawals are reducing it again.
The market may eventually recover, but the dollars that were withdrawn no longer participate in that recovery.
Why does “stay invested” fail as advice for retirees?
The advice sounds good in theory: stay invested, the market will recover, time is on your side.
It works during accumulation. When you’re still earning and contributing, market declines are actually opportunities to buy low.
But retirement changes everything. Now you’re withdrawing income while the market is declining. You’re selling shares at depressed prices to fund living expenses. Those shares never participate in the recovery.
“Just stay invested” becomes “just sell at the worst time.”
What creates flexibility in a retirement income plan?
Most retirees still need growth because retirement could last 25, 30, or even 35 years. Inflation doesn’t stop. Healthcare costs continue rising. Living expenses keep going up.
So the answer isn’t abandoning growth investments altogether. It’s building flexibility into the retirement income plan.
Flexibility creates options, and options help prevent forced decisions. That flexibility might come from cash reserves, a coordinated Social Security strategy, or taxable accounts and retirement accounts working together.
The principle remains the same: when you have options, you’re not forced to sell at the wrong time.
How do you prepare for the periods when markets don’t cooperate?
The retirees who navigate market downturns most successfully are rarely the ones making predictions. They’re usually the ones who built a plan before the downturn arrived.
Because when a major drawdown happens, they already know where income is coming from. They already know which accounts are being used. They already know how the plan responds.
That creates a very different experience than trying to figure everything out in the middle of a crisis.
Real Wealth Starts With Real Life.
Contact Information
Keith Demetriades, CFP®, CKA®, believes real wealth starts with real life. He created the 4D Client Experience to help guide decision-making and ensure your money works as a tool to support your life. If you’re ready for a financial plan that reflects how you live and what you’re building toward, contact Keith at (806) 223-1105 or visit Kingsview Partners.
The information provided in this blog is for educational purposes only and should not be considered financial advice. Please consult a qualified financial advisor to discuss your specific situation and needs. Past performance does not indicate future results, and all investments carry risks, including potential loss of principal. Any financial product or strategy references are purely illustrative and should not be construed as endorsements or recommendations.
Investment advisory services are offered through Kingsview Wealth Management, LLC (“KWM”), a SEC Registered Investment Adviser. Insurance products and services are offered and sold through Kingsview Insurance Services, LLC (“KIS”), by individually licensed and appointed insurance agents. KWM and KIS are subsidiaries of Kingsview Partners.
