Your Net WorthSequence-of-returns risk
Sequence-of-returns risk is the danger that poor investment returns occur just before or after you start withdrawing from a portfolio.
Two retirees can have the same average return over thirty years but very different outcomes if one gets the good years early and the other gets the bad years early. The one with bad years early may run out of money even though the long-term average looks fine.
This risk is highest in the years around retirement, when the portfolio is largest and withdrawals are beginning. A few negative years at that point can permanently reduce the pot.
Common defences include holding cash reserves, using a lower withdrawal rate, and being willing to cut spending after a bad year. It is one reason the 4% rule is a starting point, not a guarantee.