Managing Retirement Outcomes: When Timing Becomes Destiny
Understanding sequence risk and how to plan for it
Imagine two planes taking off from the same airport on the same morning, both headed for the same destination. One soars into clear skies, carried by a tailwind that puts it ahead of schedule. The other, leaving just an hour earlier, fights turbulence, headwinds, and a rough climb before finally leveling out. Engines burn harder; fuel runs down faster. Both planes arrive, but one glides smoothly, while the other endures a far bumpier ride.
Retirement can feel much the same. Two investors with identical savings, portfolios, and withdrawal rates, can end up worlds apart. Why? Because of one factor they can’t control: market performance in the first years of retirement. It’s like booking a flight months in advance without knowing what the weather will bring on departure day. If storms arrive early, the trip gets rough. In investing, this is called sequencing risk: the danger that poor early returns, combined with withdrawals, can permanently weaken your portfolio’s ability to fund the retirement you’ve worked so hard for.
What Is Sequencing Risk?
Most investors think in terms of “average returns.” If a balanced portfolio for example delivered 5% per year over the long run, it feels natural to plan around that number. But averages hide an important truth: the path matters just as much as the result.
When you’re still saving, an early downturn is almost a gift, it lets you buy more shares at lower prices, compounding into stronger results later. But once you’re retired and no longer contributing to your retirement, the script flips. Withdrawals during a downturn lock in losses, shrinking the foundation your future growth depends on.
That’s the power of sequencing risk. Two portfolios with the same average return can lead to very different outcomes in retirement. Put simply: it’s not just how much your portfolio earns - it’s when it earns it.
Evidence in Motion: The Global Financial Crisis
The 2007–2009 Global Financial Crisis offers a vivid real-world test. Picture two retirees, each starting with $1,000,000 in October 2007 – right as the downturn began. Both take an initial 4% withdrawal ($40,000), adjusted annually for inflation.
A 60/40¹ balanced portfolio weathers the storm and, despite deep early losses, recovers to $1.35M by the end of 2024.
An 80/20 growth portfolio ends in almost the same place ($1.35M) but takes a significantly bumpier ride.
A 100% equity portfolio, which theory might suggest offers the best long-term growth, trails behind - finishing with $1.23M after 17 years.
The lesson is clear: in retirement, risk doesn’t always equal reward. Early withdrawals during market downturns punish all-equity portfolios far more than balanced allocations.
This can be seen by examining the break-even point, the time it takes to recover the original $1,000,000 balance. A balanced portfolio recovered in about 6 years, while growth portfolios took 7 years and all-equity investors waited an exhausting 13 years.
Now change just one variable: the withdrawal rate. At 6% ($60,000 initially), the impact is devastating. Even the balanced portfolio struggles, falling to $563,689 by 2024. For the all-equity investor, the outcome is worse, just $233,825 remaining, a devastating shortfall.
The lesson? More equities don’t always lead to better results, and withdrawal discipline matters.
Retirement as a Coin Toss of Timing
If poor markets hit early in retirement, the damage can be permanent. Conversely, strong markets early on can supercharge outcomes. The difference is staggering.
Consider two retirees:
One retired in October 2007, just before the Global Financial Crisis.
Another retired in March 2009, near the market bottom.
Both began with $1,000,000; both withdrew 4% annually, and both invested in the same portfolios. Yet by the end of 2024, their outcomes look nothing alike:
Balanced 60/40 portfolio: the unlucky retiree finishes with $1.35M, while the fortunate one ends with $3.83M - a $2.5M gap.
80/20 growth portfolio: one lands at $1.35M, the other at $4.93M - nearly a $3.6M gap.
100% equities: one retires with $1.23M, while the other soars to $6.28M - a jaw-dropping $5M difference.
This is sequencing risk in sharp relief. Identical portfolios, identical withdrawal strategies, even identical average returns, yet radically different outcomes depending on when retirement began. In retirement, market timing risk is magnified because withdrawals turn temporary losses into permanent ones.²
Why This Matters
For someone still saving, volatility is background noise. For someone living off their savings, it’s existential. Once withdrawals begin, your portfolio no longer has the luxury of decades to recover. Sequencing risk isn’t about average returns, it’s about when those returns happen.
That reality shifts the goal of retirement planning. It’s less about squeezing out maximum returns and more about narrowing the gap between best-and worst-case scenarios. Put simply, the aim is to make retirement feel less like chance, and more like a plan.
Westmount Wealth’s Approach
At Westmount Wealth, we know managing retirement outcomes requires more than a one-size-fits-all portfolio. It takes deliberate strategies designed for the realities of withdrawals:
Cash Wedges: We set aside several years of essential spending in cash or short-term bonds. This buffer allows retirees to ride out downturns without selling long-term assets at depressed prices.
Dynamic Spending: Not all retirement spending is fixed. By working with clients to distinguish needs from wants, we create flexible spending rules that can adjust modestly in down years without compromising quality of life.
Diversified Risk Factors: Beyond stocks and bonds, we include exposures that behave differently across cycles. This smooths the ride and reduces reliance on any single economic outcome.
Stress Testing: We run Monte Carlo simulations across hundreds of market paths and layer in “what-if” scenarios, longer lifespans, higher inflation, lower returns. This gives clients a realistic view of risks and builds confidence that their plan can withstand the unexpected.
These aren’t theories, they’re practical steps to move retirement outcomes from luck toward resilience.
Final Thoughts
Most investors want certainty: a simple rule, a clear average, a safe number they can count on. But retirement rarely plays out so neatly. The first decade is especially fragile, when the sequence of returns matters more than the averages themselves.
No one can control the markets. But every retiree can control how they prepare. Sequencing risk can’t be erased, but it can be managed - and that is the essence of planning.
Think back to the airplane analogy. Retirement isn’t about hoping you catch the perfect tailwind. It’s about creating a flight plan that gets you safely to your destination, even when the skies turn rough.
Our goal is to help clients move from uncertainty to clarity, not by predicting markets, but by controlling the controllables: cost, tax efficiency, diversification, spending discipline, and cash flow alignment.
Because in the end, retirement outcomes are not defined by luck alone - but by preparation that ensures luck plays a smaller role in your future.
This information has been prepared by Damir Alnsour, MBA, CFA, CFP®, FCSI® who is Head of Portfolio Management, Portfolio Manager, Financial Planner for Westmount Wealth Management Inc. Westmount Wealth Management Inc. is registered as a Portfolio Manager in British Columbia, Alberta, and Ontario. Westmount Wealth Planning Inc. is a subsidiary of Westmount Wealth Management Inc.
This material is distributed for informational purposes only and is not intended to provide personalized legal, accounting, tax, or specific investment advice. Please speak to a Westmount Wealth Advisor regarding your unique situation.
¹: 40% Bloomberg Global Agg TR Index, 24% MSCI USA TR Index, 18% S&P/TSX Composite TR Index, 18% MSCI ACWI Ex USA TR Index – Source: YCharts. 80/20 and 100/0 composed of the same indices, minus the bond allocation for the all-equity portfolio, rescaled weights.
²: Note: We are cognizant and acknowledge that the earlier retiree would have withdrawn approximately ~$53K more in principal over the first 16-months from October 2007 through to March 2009, while this would have an impact on long-term compounding, we deliberately chose to set that aside to purely keep things simple and digestible.
