If You're Nearing Retirement, Be Sure You're Managing This Big Risk

Research shows the long-term damage done to a nest egg when new retirees sell their investments in a down market. Here are ways to avoid that risk.

For long-term savers — those whose retirement is many years or decades away — the ups and downs of the stock market generally matter less because their portfolios have time to recover before being relied on for cash flow.

The chart below illustrates the difference that market losses versus market gains early in retirement can have. In the chart, both portfolios hold the same investments and experience the same annual returns, but in opposite orders over 25 years. If your planned retirement date is approaching, it's worth checking to see if your portfolio is constructed in a way that addresses this sequencing risk. Generally speaking, this means trying to keep any money you'll need to meet your expenses away from stocks and other riskier investments.

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