A large market decline early in retirement can force withdrawals from a depressed portfolio and leave fewer assets available for a recovery. Stable cash or GIC-type assets, flexible spending and tax-aware withdrawal choices can improve resilience, but none eliminates market risk.
Same average return, different outcome
Imagine a portfolio experiences a large loss, then several strong years. If the loss happens before retirement withdrawals begin, the investor may have time to recover. If the same loss happens immediately after retirement and spending must continue, assets are sold at lower values and fewer units remain to participate in the rebound.
Ways retirees can manage sequence risk
- Maintain a reasonable cash or high-quality short-term reserve for near-term spending.
- Separate stable interest/GIC holdings from market-sensitive investments.
- Reduce discretionary spending after severe market declines.
- Use tax-aware account withdrawals rather than selling the same asset class every year.
- Delay or adjust major discretionary expenses when the plan is under stress.
Why Monte Carlo is useful
A deterministic projection assumes one smooth average return and therefore cannot show sequence risk. Monte Carlo analysis varies market returns year by year and measures how often the retirement plan funds spending through the planning horizon. It is still a model, but it exposes risks hidden by a straight-line return.
How the planner stress-tests sequence risk
The planner can run 500, 1,000 or 2,000 market paths and reports success probability plus 10th, median and 90th percentile outcomes. It also includes a specific 30% market-drop-at-retirement stress test and models stable interest/GIC assets separately from market investments.
Stress-test your retirement plan
Run Monte Carlo confidence and a retirement-start market-drop test using your own assumptions.