Most retirement planning runs on one number: the average return. Assume 5% or 6% a year, project the pot forward, and the plan either works or it doesn't.

That logic holds while you're saving. But the moment you start drawing an income, a second variable quietly takes over: the order in which the good and bad years arrive.

This is sequence-of-returns risk, often shortened to sequence risk. It's one of the most important and least discussed risks in UK drawdown. Two people can earn exactly the same average return over a decade and finish with very different pots, and the first five to ten years of withdrawals do most of the deciding.

What sequence-of-returns risk actually is

While you're building a pension, the order of returns doesn't change where you end up. A 20% fall followed by a 20% rise leaves you in exactly the same place as a 20% rise followed by a 20% fall. Multiplication doesn't care about order.

Withdrawals break that symmetry. Once money leaves the pot every year, a bad year early on means selling investments at lower prices to fund your income. Those units are gone, and they can't take part in the recovery.

In the UK this is sometimes called pound-cost ravaging, the mirror image of the pound-cost averaging that helped you while you were saving. Regular contributions buy more units when prices are low. Regular withdrawals sell more units when prices are low.

That's why the timing of losses matters so much more in retirement than before it. For a monthly contributor, a crash at 45 means buying units cheaply. The same crash at 61, two years into drawdown, can permanently shrink what the pot is able to pay.

A worked example: same pot, same withdrawals, same average return

Consider two fictional retirees, Helen and Priya. Both are 60, both have £400,000 in a SIPP (Self-Invested Personal Pension), and both move into flexi-access drawdown on the same day. Here are the assumptions:

• Each takes a fixed £20,000 a year, 5% of the starting pot, withdrawn at the start of each year. What's left is then invested for the rest of that year.
• Both experience exactly the same ten annual returns: -20%, -10%, 0%, +5%, +10%, +10%, +10%, +15%, +20% and +20%. That's an average of 6% a year.
• Helen gets them in that order, bad years first. Priya gets them in reverse, good years first.
• Figures are before tax, charges and inflation, and are rounded to the nearest pound each year. This illustrates the mechanics; it isn't a forecast. Real returns are never this tidy, and investments can fall as well as rise.

One more thing before the table. If neither of them withdrew a penny, both pots would finish the decade at exactly £666,531. Same returns, same end point, whatever the order.

Now add the withdrawals. Each year: take £20,000 out on day one, then apply that year's return to what's left.

Same pot. Same £200,000 withdrawn. Same average return. Priya finishes the decade with £467,317, and Helen finishes with £292,463.

The gap is £174,854. None of it comes from better investing. It comes entirely from timing.

Why the early years do the damage

Look at the halfway mark. After five years, Helen's pot is £227,018 and Priya's is £654,003. Priya then walks into the two worst years of the whole sequence, a 10% fall followed by a 20% fall, and still finishes far ahead.

That's the heart of sequence risk. Priya's bad years hit a pot that had already grown, so her withdrawals were a small slice of it. Helen's bad years hit before her pot had any chance to grow, while she was still taking the full £20,000.

By the start of year six, the same £20,000 withdrawal is 8.8% of Helen's pot but only 3.1% of Priya's. And look at Helen's three consecutive 10% gains in years five to seven: they barely move her pot, from £226,380 to £228,492. Each year's growth is almost exactly what she withdraws. The recovery is spent funding her income rather than rebuilding her capital.

Why sequence risk matters more in UK drawdown now

Before the pension freedoms of April 2015, the large majority of people with defined contribution pensions converted their pot into an annuity, which hands market risk to the provider. Today flexi-access drawdown is the route many people choose, which means the pot stays invested and the retiree carries sequence risk personally.

A few features of UK retirement concentrate that risk into the early years:

• The gap before State Pension. State Pension age is rising from 66 to 67 between 2026 and 2028. Anyone who stops work in their late 50s or early 60s typically draws most heavily from their pot in exactly the years when sequence risk bites hardest. We covered how to fund those years tax-efficiently in our post on the Pension Drawdown Bridge.
• Higher early withdrawals. Taking tax-free cash, a one-off spend on a home or car, or front-loaded travel all increase the share of the pot leaving in the first few years.
• Markets don't schedule themselves around retirement dates. Someone who began drawdown at the start of 2000 met three consecutive calendar years of falling UK share prices. 2008 brought another sharp fall. And 2022 showed that bonds aren't immune either, as UK gilt prices fell steeply while interest rates rose.

None of this means drawdown is the wrong choice. It means a drawdown plan has to be tested against the order of returns, not just the average.

How retirees manage sequence-of-returns risk

There's no single fix, and every approach carries trade-offs. Here's how the main tools work, in general terms.

A cash buffer

Some retirees hold one to three years of planned withdrawals in cash alongside their invested pot. When markets fall, income comes from the cash rather than from selling investments at depressed prices, giving the invested portion time to recover. In better years, the buffer is topped back up. Extended into several pots for the short, medium and long term, this is often called a bucket strategy.

The trade-off: over long periods cash has historically returned less than shares, so a large buffer can drag on long-term growth. And a buffer only buys time. A downturn that outlasts the cash doesn't disappear. Cash held inside a pension, in an ISA (Individual Savings Account) or in an ordinary savings account can all play this role, each with different tax treatment.

Flexible withdrawals and spending guardrails

The most direct lever is the withdrawal itself. A spending guardrail is a rule set in advance: if the pot falls below a certain level, or withdrawals climb above a certain percentage of it, income is trimmed. If the pot rises well ahead of plan, income can rise too.

Go back to Helen. Suppose she had trimmed her withdrawal from £20,000 to £16,000 in years two and three, straight after the two falls, then returned to £20,000 from year four. That's £8,000 less income in total.

On the same assumptions, her pot would finish the decade at £310,052 instead of £292,463, which is £17,589 higher. A small, temporary cut during the worst years ends up worth more than twice its face value by year ten, because that money stayed invested for the recovery.

The catch is that guardrails only work if your essential spending leaves room to flex. That's where the next two tools come in.

The State Pension as a floor

The State Pension is the one income most UK retirees have that doesn't depend on markets at all. The full new State Pension is £241.30 a week in 2026/27 (about £12,548 a year) for someone with 35 qualifying years of National Insurance, and it rises each April under the triple lock.

Once it starts, it can cover a large share of essential costs, which reduces how much has to come out of the pot each year. In reality, a full State Pension arriving at 67 would cover more than half of Helen's £20,000 on its own. A lower withdrawal rate means a smaller share of the pot is sold in any bad year, and that's exactly what dampens sequence risk.

Seen this way, the years before State Pension age are the most exposed stretch of many retirement plans. It's another reason the first five to ten years carry so much weight.

Partial annuitisation

Another option some people weigh up is using part of their pot to buy an annuity, a guaranteed income for life, while keeping the rest in drawdown. Paired with the State Pension, the annuity can cover essential spending with income that doesn't depend on markets, leaving the drawdown pot to fund the flexible extras.

The trade-offs are real. Annuity rates are set at the point of purchase and depend on your age, health and prevailing interest rates. Once bought, an annuity generally can't be reversed, and depending on the options chosen, money used to buy one may no longer form part of what you can pass on. We compared the two routes in detail in our post on drawdown versus annuities. The point here is simply that it doesn't have to be all or nothing.

Stress-testing the order, not just the average

Here's the problem with a single-line projection: a plan built on "6% a year" treats Helen and Priya as identical. They clearly aren't.

The honest way to plan for sequence risk is to test your plan against many possible orders of returns, including the ugly ones, and see how often it holds up. That's the thinking behind Optiml's Success Score. When Optiml launches in the UK, the Success Score will stress-test your plan against up to 50 market scenarios drawing on the FTSE All-Share, global equity indices, UK gilts and cash savings, so you can see how your plan behaves if the bad years come first.

From there, Optiml UK is being built to let you try the levers above on your own numbers: a larger or smaller cash buffer, a flexible spending rule, a different State Pension claim age, a partial annuity. With Compare Plans, those versions will sit side by side, so the trade-offs are visible rather than guessed.

Optiml plans; it doesn't recommend specific stocks or funds. Its job is to show you what each choice does to your whole retirement, in pounds, across every year.

The years you can't predict

Sequence-of-returns risk isn't a reason to fear drawdown. It's a reason to plan for the years you can't predict. Average returns describe where markets might go over a lifetime, but the first decade of withdrawals decides how much of that journey your pot actually gets to take.

Optiml is coming to the UK, built to model exactly this. Join the waitlist to be among the first to stress-test your own plan.

It's not about the average. It's about the order.