The Fragile Decade: Why Market Cycles Matter in Retirement
There is a retirement risk that does not receive nearly enough attention: sequence of returns risk. Put simply, it is the danger of encountering poor market performance at the wrong time. When this happens in the early years of retirement, it can damage your plan far more than if the same downturn occurs later. This risk is especially present during what many planners call the fragile decade—the five years before retirement and the first five years after. Within this ten-year window, the order of market returns often matters more than the average return you earn over your lifetime.
Why the First Years Matter So Much
During your working years, a market drop feels uncomfortable, but your paycheck continues covering expenses, and your 401(k) contributions buy more shares at lower prices. You are still building for the long run. In retirement, everything changes. Your paychecks stop, and your portfolio becomes the main source of income. If markets decline early, you may need to sell more shares at lower prices to meet everyday expenses. Once those shares are sold, they are no longer available to recover when markets rebound—this is the essence of sequence of returns risk. Imagine two retirees with identical portfolios and identical withdrawal plans. One experiences strong markets early and grows their balance despite withdrawals. The other faces a downturn early, sells at low prices, and struggles to recover even when markets improve. Same portfolio, same strategy, entirely different outcomes—timing alone makes the difference.
How to Protect Your Retirement Plan
You cannot control what happens in markets during your fragile decade, but you can prepare for it. Several strategies help reduce the impact if you encounter a difficult period.
Stay Flexible With Withdrawals
A rigid withdrawal plan can work against you. Allowing spending to adjust with market conditions is a more resilient approach. When markets are down, temporarily reduce withdrawals; when markets are strong, you can spend more confidently. Even a simple rule that ties withdrawals to portfolio performance can add meaningful protection. Flexibility is especially valuable during the fragile decade because it prevents you from committing to spending levels that may not be sustainable if the market struggles early on.
Review Your Investment Mix
The traditional advice of reducing stock exposure every year in retirement does not always align with sequence-of-returns risk. A more practical approach is to begin retirement with a slightly more conservative allocation and then gradually increase stock exposure as you move beyond the fragile decade, when the risk of early losses has passed. Additional tools—such as maintaining extra cash reserves or using a bond ladder—can help smooth volatility by providing predictable income for near-term spending. This reduces the likelihood of being forced to sell stocks while they are temporarily down.
Keep a Cash Buffer
Having assets that are not tied to the markets gives you breathing room. This could be one to two years of expenses in a savings account, a home equity line of credit secured before retirement, or even access to life insurance cash value. These resources provide options during market downturns, allowing you to avoid selling long-term investments at unfavorable prices.
Putting It All Together
The fragile decade is not about predicting markets—none of us can. It is about preparing so that natural market fluctuations in your early retirement years do not jeopardize your long-term financial security. A thoughtful plan blends flexible withdrawals, a portfolio built for both stability and growth, and backup resources you can rely on when needed. Preparing for this ten-year window strengthens the foundation of your entire retirement. Retirement should be about enjoying life, not worrying about the next downturn. By planning ahead for the fragile decade, you give yourself the best opportunity to live the retirement you envision.