What is sequence-of-returns risk, explained simply?

Sequence-of-returns risk is the danger that poor returns hit early in retirement, when you're withdrawing money, doing far more damage than the same poor returns would later. Two retirees can experience the identical average return over 30 years yet end up with wildly different outcomes purely based on the order of those returns. The reason: if the market falls early and you're selling shares to live on, you lock in losses and have fewer shares left to recover when prices rise. While you're still working and contributing, the sequence barely matters – early drops actually help you buy cheap. It only becomes critical once withdrawals begin. Common defenses include holding 1–3 years of spending in cash or short bonds, staying flexible on withdrawals in down years, and not retiring 100% in stocks. Stress-test your plan at wealthserene.com/tools/retirement-planner.