The Retirement Danger That Can Leave You Short of Your $1 Million Nest Egg

For most of a working life, retirement planning follows a simple rule: save as much as possible, do it consistently, and let time and compounding do the rest.

But as retirement approaches, the market swings that long-term investors are usually told to ignore can become a serious threat to a saver’s financial security.

Once you stop collecting a paycheck and begin relying on your portfolio, the timing of market moves matters a great deal. Near-retirees often fail to adjust their approach, and many do not recognize the risk until it is already affecting their savings.

Holding On for the Market’s Best Days Can Be Costly

Morgan Stanley has noted that, over the long run, buying and holding high-quality stocks generally outperforms attempts to time the market. Even many professional money managers struggle to move in and out of positions ahead of market drops and recoveries without hurting their returns.

JP Morgan Asset Management’s data shows how expensive that can be. If an investor put $10,000 into the S&P 500 on Jan. 2, 2006, the account would have grown to $80,619 by Dec. 31, 2025, assuming the money stayed invested. Missing only the market’s 10 best days over that span would have reduced the balance to $35,866, a loss of 55.51%.

Why the Worst Days Matter More Near Retirement

Investors such as Warren Buffett have long argued that patience and long-term ownership are the right approach. For those nearing retirement, though, the greater danger is encountering the market’s worst days at exactly the wrong moment.

Charles Schwab has pointed to a lesser-known but crucial issue called sequence-of-returns risk. If the market falls just as retirement begins, withdrawals from a shrinking portfolio can quickly erode years of saving and planning.

How Two Retirees Can End Up With Very Different Outcomes

Schwab illustrated the effect with a simple comparison:

• Two investors retire with $1 million each.

• Both withdraw $50,000 in the first year and then increase withdrawals by 2% annually to keep up with inflation.

• Investor 1 faces a 15% decline in the first two years.

• Investor 2 sees the same 15% decline in years 10 and 11.

• By year 18, Investor 2 still has $400,000.

• By year 18, Investor 1 has nothing left.

Preparing for an Unlucky Start to Retirement

According to Schwab and Fidelity, holding some cash can help protect against sequence-of-returns risk. Keeping one to two years of living expenses in a savings account or similar vehicle can reduce the chance of being forced to sell investments after a market drop.

That buffer may be enough to get retirees through a bear market, which Hartford Funds says typically lasts less than 10 months and is often followed by a rebound that restores losses and then adds gains. After that, retirees can resume planned withdrawals from a portfolio that has had time to recover and continue growing.