Benefit Calculation
Understanding Social Security and Sequence of Returns Risk
Verified against SSA POMS as of September 21, 2026
The short answer
Sequence of Returns Risk refers to the possibility that the order and timing of investment returns will impact the sustainability of withdrawals in a retirement portfolio. It is crucial for individuals relying on Social Security after retirement to consider this risk, as it may affect the longevity of their benefits and overall financial stability.
What is Sequence of Returns Risk?
Sequence of Returns Risk involves the order in which investment returns occur and how they specifically impact the withdrawal amounts from portfolios. This is particularly vital for retirees who start dipping into their investments during market downturns.
CMSPDF:medicare/medicare-fee-for-service-payment/snfpps/downloads/summary_report_20140501.pdf View source ›Implications for Social Security
Given that Social Security may form a significant part of retirement income, understanding the effects of sequence risk can help retirees plan withdrawals and manage their finances more sustainably.
This involves assessing potential fluctuations in retirement income due to investment returns and aligning Social Security claims accordingly.
CMSPDF:medicare/medicare-fee-for-service-payment/snfpps/downloads/summary_report_20140501.pdf View source ›Strategies to Mitigate Sequence Risk
Retirees can deploy several strategies to lessen the impact of sequence risk, such as maintaining a portion of assets in less volatile investments, adjusting withdrawal rates during market downturns, and delaying Social Security benefits to enhance income in later years.
CMSPDF:medicare/medicare-fee-for-service-payment/snfpps/downloads/summary_report_20140501.pdf View source ›Frequently asked
How does sequence of returns risk affect my Social Security?
Sequence of returns risk can affect your overall retirement income, including Social Security, as negative returns in early retirement have the potential to deplete investment portfolios more rapidly, impacting the amount you may need from Social Security.
Can delaying Social Security mitigate sequence risk?
Yes, delaying Social Security can mitigate sequence risk by potentially increasing the amount of the benefit when you start collecting, providing more financial security during market fluctuations.
What are some ways to manage sequence risk in retirement?
Managing sequence risk involves strategies like diversifying investments, using fixed-income assets, adjusting withdrawal rates, and aligning Social Security claims with investment performance.
Is sequence of returns risk a concern if I only rely on Social Security?
Even retirees who primarily rely on Social Security can be affected by sequence risk, especially if they also draw from investment portfolios or pension plans that are susceptible to market fluctuations.
What is the best way to avoid the impact of sequence of returns risk?
Although you can't avoid sequence of returns risk completely, planning withdrawals carefully, remaining flexible with investment strategies, and possibly deferring Social Security can help mitigate its impact.