Why Market Crashes Hurt Retirees More Than You Think
Executive Summary
Most people assume that if the market eventually recovers, their retirement will too. Keith Demetriades explains why two retirees earning identical average returns can end up in completely different financial positions, how sequence of returns risk permanently damages retirement income, and why protecting against losses matters far more than maximizing returns once withdrawals begin.
See an in-depth exploration of this topic here:
Discover a Smarter Way to Manage Market Risk: https://go.kingsview.com/learn
Why Market Crashes Hurt Retirees More Than You Think
Most people assume that if the market eventually recovers, their retirement will too.
It sounds logical. But that assumption is one of the most dangerous you can make.
Two retirees can earn the exact same average return over 30 years. One ends retirement with money to spare. The other runs out.
Same return. Completely different outcome.
The reason has nothing to do with how smart they were, how much they saved, or which investments they chose. It comes down to one thing most retirement plans never account for.
1. Why do two retirees with the same average returns end up differently?
When you’re working, your portfolio has one job: grow.
A bad market year is painful, but you’re still contributing. Still buying shares. Time remains on your side.
Retirement changes that completely. Now your portfolio has to do two things simultaneously: keep growing and fund your life.
Every month, you’re withdrawing income. And that’s where timing starts to matter in ways most people never expect.
If the market drops significantly in the first few years of retirement, you’re selling investments at low prices just to cover expenses. Those sold shares are gone. They’re not there to participate in the recovery.
So even when the market comes back, your portfolio doesn’t come back with it. Not fully.
That’s sequence of returns risk, and it’s why two people with identical average returns can end up in completely different financial situations.
2. How does sequence of returns risk change the recovery equation?
You only get one retirement. One sequence of returns. One stream of withdrawals. There’s no reset button.
A market drop during accumulation years is temporary volatility. A market drop during early retirement becomes permanent damage if withdrawals are happening simultaneously.
The timing of when losses occur matters far more than the magnitude or how long the recovery takes.
3. What are the most common (and most damaging) responses to sequence risk?
When people hear about sequence risk, they usually respond in one of a few ways. Most of those responses create a different problem.
The first is: “I’ll just stay invested and ride it out.” That works during accumulation. During withdrawals, it means selling at the bottom to fund income. Those sold shares don’t recover.
The second is: “I’ll move to safer investments—bonds, cash, something more conservative.” That reduces the risk of a big drop, but it may not grow enough to keep up with inflation over a 20 or 30-year retirement. You’ve traded one risk for another.
The third, most common response, is to simply not change anything. Keep the same portfolio from your working years. A static allocation that never adapts.
The problem is that markets evolve. Your income needs evolve. A portfolio that never adapts was built for a version of your life that no longer exists.
4. How much growth do you need to recover from a major loss?
If your portfolio drops 30%, you don’t just need 30% growth to recover. You need over 40% just to break even.
Losses compound faster than gains.
Which means the most important thing in retirement isn’t maximizing returns. It’s protecting against losses that can permanently derail your income.
Most retirement plans ask: “What return do I need?” The question that actually matters is: “What happens to my income if the market has a bad few years right after I retire?”
Those are very different conversations.
5. What does a retirement plan actually need to look like?
The shift that matters is moving away from building retirement plans around average returns and toward managing risk.
Stop asking: “What’s the most efficient portfolio?” Start asking: “What’s the most survivable portfolio?”
What that looks like in practice is a retirement income strategy built around three things.
First, sustainable income. Your plan needs to fund your life not just in good years, but in bad ones too. Income can’t depend entirely on the market cooperating.
Second, managed drawdowns. The goal isn’t eliminating risk—that’s impossible. It’s keeping losses manageable enough that your portfolio can recover without permanently impairing your income. Smaller losses recover faster, and faster recovery means more money stays working for you.
Third, an adaptive strategy. Markets change. Your needs change. A retirement plan set once and never revisited slowly falls out of alignment with reality.
When retirement income is managed right, you’re following a disciplined process designed to manage the path your portfolio takes—not just the average return it earns over time.
Because in retirement, the path matters as much as the destination.
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.
Disclaimer
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.
