Same savings. Same withdrawals. Same average return. A $1.37 million difference - decided entirely by the order the returns arrived in.
Two people retire with the same savings, take the same withdrawals, and earn the same average return over twenty years. One ends with more than twice what the other has. Nothing separates them except the order the returns arrived in. That's sequence of returns risk, and in the decade around your retirement date it matters more than the average you earn.
Here are two retirees. Each starts with $1,000,000, withdraws $50,000 in year one and increases it 2% annually for inflation, and experiences exactly the same twenty annual returns - averaging 8.8%. The only difference is that one gets the three down years at the start and the other gets them at the end.
Illustration only, not a projection of any actual investment. Identical 20-year return series in reverse order; 8.8% arithmetic average both ways. Withdrawals taken at the start of each year. Excludes taxes and fees.
A $1.37 million gap. Same money in, same money out, same average return. The retiree who hit the downturn first spent the next seventeen years trying to recover from a base that had already been cut by withdrawals taken at the worst possible time.
While you are still working and contributing, a market drop is arguably working for you. Your regular contributions buy more shares at lower prices - ordinary dollar-cost averaging.
In retirement the flow reverses. You are selling shares to fund withdrawals, so a downturn means selling more shares to raise the same dollar amount. Those shares are gone before the recovery arrives. It's sometimes called reverse dollar-cost averaging, and it's the entire reason the same 20% decline is a minor event at 45 and a serious one at 65.
Researchers describe the danger window as roughly the five years before and five years after your retirement date - about ten years when your portfolio is at its largest and withdrawals are starting or imminent.
Morningstar's 2026 retirement income research is explicit about it: retirees who hit poor returns in their first five years and didn't reduce spending were far more likely to run out of money than those who saw positive early returns.
The familiar “4% rule” comes from research published in the 1990s. It's a starting point, not a law - and the number moves with market conditions. Morningstar has published forward-looking updates since 2021:
Morningstar's published safe withdrawal rate research, assuming a portfolio of roughly 30–50% equities. Higher bond yields are cited as the main driver of the 2026 uptick. Not a recommendation for any individual.
And a finding that surprises most people: Morningstar found that more equity-heavy portfolios generally do not support the highest starting safe withdrawal rates, because higher volatility creates more sequence risk. Neither extreme works well under real withdrawal pressure - all bonds may not outpace inflation, all equities amplifies a bad early sequence.
These are usually combined rather than chosen between:
An income floor is the strategy that most often leads people to annuities, and it's worth being precise about what one does and doesn't solve.
What it addresses: money placed in a guaranteed income contract stops being exposed to sequence risk, because the income doesn't depend on what the market did the year you started withdrawing. For someone whose main fear is retiring into a bad market, that's the specific problem it solves. A fixed index annuity adds a 0% floor, so the contract value doesn't fall with the index - though caps and participation rates limit the upside, and policy charges apply.
What it doesn't address: it does nothing for the rest of your portfolio. It reduces liquidity. Guarantees depend on the claims-paying ability of the issuing insurer. And surrender charges typically apply for a period of years, so it's not money you should expect to reach early.
If you can't answer these quickly, the plan isn't tight enough yet. None of them require predicting the market - which is the point.
Sequence of returns risk is the danger that the order in which investment returns arrive - not just their average - determines whether your retirement savings last. When you are withdrawing money, a poor market early in retirement forces you to sell more shares at depressed prices, permanently reducing the base that has to recover. Two retirees can earn the identical average return over twenty years and end up hundreds of thousands of dollars apart purely because of the order those returns arrived in.
While you are saving and contributing, a market drop is arguably helpful - your regular contributions buy more shares at lower prices, which is dollar-cost averaging. In retirement the flow reverses. You are selling shares to fund withdrawals, so a downturn means selling more shares to raise the same dollar amount. That is sometimes called reverse dollar-cost averaging, and it is why the same market decline has very different consequences at 45 and at 65.
The retirement risk zone is commonly described as the five years before and the five years after your retirement date - roughly a ten-year window when your portfolio is at its largest and withdrawals are beginning. Morningstar's 2026 retirement income research found that retirees who experienced poor returns in their first five years and did not reduce spending were considerably more likely to run out of money than those who saw positive early returns.
The 4% figure comes from research published in the 1990s and is a starting point rather than a law. Morningstar has published forward-looking updates since 2021 and the number moves with market conditions: 3.3% in late 2021, 4.0% in 2022, 3.7% for 2025 retirees, and a 3.9% base case for 2026, with higher bond yields cited as the main driver of the recent uptick. Those figures assume a portfolio holding roughly 30% to 50% equities.
Not necessarily, and this surprises people. Morningstar found that more equity-heavy portfolios generally do not support the highest starting safe withdrawal rates, because higher volatility creates more sequence of returns risk. Neither extreme performs well under real withdrawal pressure - an all-bond portfolio may not keep pace with inflation, while an all-equity portfolio amplifies the damage of a bad early sequence.
Four approaches are commonly used, often together: hold a cash and short-duration buffer covering one to three years of spending so you are never forced to sell into a downturn; use flexible rather than fixed withdrawals, taking less in bad years; build a guaranteed income floor from Social Security, any pension, and where suitable an annuity, so essential expenses do not depend on market performance; and reduce equity exposure approaching the risk zone, then increase it again later.
It can remove that risk from the portion of your money placed in it, because a guaranteed income stream does not depend on market timing. It does not eliminate the risk from the rest of your portfolio, and it introduces different trade-offs - reduced liquidity, and guarantees that depend on the issuing insurer's claims-paying ability. Annuities are one tool for managing sequence risk, not a complete retirement plan and not right for everyone.
There is no universal percentage, and anyone who gives you one without knowing your situation is guessing. A common framework is to cover essential expenses - housing, food, utilities, insurance, baseline healthcare - with high-reliability income sources, and fund discretionary spending from the market portion. That means the right amount depends on your essential expenses, your Social Security benefit, and whether you have a pension.
General education, not investment, tax or legal advice, and not a recommendation to buy any product. The illustration above is hypothetical, uses an assumed return series for demonstration, and does not represent any actual investment or predict future results; it excludes taxes and fees. Safe withdrawal rate figures are Morningstar’s published research and are not a recommendation for any individual. Annuities are long-term insurance products; guarantees are subject to the claims-paying ability of the issuing insurer, and surrender charges and other limitations apply. Product availability and features vary by carrier and state. Consult a qualified tax or financial professional about your own situation.
What an annuity is. Annuities are long-term insurance products designed for retirement income, not short-term savings vehicles and not investments in the stock market. A fixed index annuity is a fixed insurance product issued by an insurance company. It is not a security, and it is not FDIC insured, not bank guaranteed, and not a deposit of, or guaranteed by, any bank or credit union.
Guarantees. All guarantees, including any floor, minimum value, or income benefit, are backed solely by the financial strength and claims-paying ability of the issuing insurance company. They are not guaranteed by DG Life Group, by any broker, or by any government agency.
You do not own the index. With a fixed index annuity you are not buying shares of any index, stock, or fund. Interest is credited according to a formula tied to an index's performance. Index crediting typically excludes dividends, so returns will not match the total return of the index itself. Caps, participation rates, and spreads limit the interest credited, and the carrier can generally change them on future crediting periods, subject to contractual minimums.
Access to your money. Surrender charges apply during a surrender period that commonly runs several years, and a market value adjustment may also apply. Withdrawals reduce the contract value, any death benefit, and any income benefit. Withdrawals of taxable amounts are subject to ordinary income tax, and withdrawals taken before age 59½ may incur an additional 10% federal tax penalty. Optional riders, including income riders, usually carry an explicit charge that reduces contract value.
Illustrations and figures. Any values, rates, or examples shown are hypothetical and for illustration only. They do not represent any specific contract, are not a projection or guarantee of future results, and exclude taxes and fees unless expressly stated. Product features, rates, riders, and availability vary by carrier and by state and change over time. Nothing here describes any particular insurer's current products.
Our obligations to you. Under the NAIC Suitability in Annuity Transactions Model Regulation (Model #275), adopted in nearly every U.S. jurisdiction, a producer recommending an annuity must act in the consumer's best interest and satisfy obligations of care, disclosure, conflict of interest, and documentation. That means a recommendation is based on your financial situation, needs, and objectives; that our role and compensation are disclosed; and that the basis for the recommendation is documented. DG Life Group is compensated by the issuing insurance company through commission when a contract is placed. We will tell you that before you apply, not after.
This page is education, not advice. It is general information only, is not a recommendation to purchase any product, and is not investment, tax, or legal advice. No recommendation can be made without a review of your individual circumstances. Consult a qualified tax advisor about tax consequences and an attorney about legal questions. The contract, its prospectus or disclosure statement where applicable, and the issuing carrier's own materials govern in all cases - read them before you buy.
DG Life Group · Dev Gaymes, Licensed Insurance Advisor · NIPR# 16654074 · 6060 N Central Expy, Ste 500, Dallas, TX 75206 · (214) 989-7704. Licensed in 19 states. Insurance products are issued by the carrier, not by DG Life Group. DG Life Group is an independent insurance brokerage and is not a registered investment adviser or broker-dealer, and does not offer securities or investment advisory services.