Average return is useful, but it can hide the question retirees actually care about: Will the money support withdrawals for as long as I need it?

Retirement adds withdrawals to the equation

While you are accumulating, a market decline can be uncomfortable but you may still be adding money. In retirement, the direction reverses. You are taking money out, which means losses early in retirement can force withdrawals from a smaller balance.

The order of returns can matter

This is commonly called sequence-of-returns risk. A strong average return over 20 years does not guarantee a strong retirement outcome if the worst years happen near the beginning while withdrawals are occurring.

See our detailed guide: Sequence of Returns Risk & the Lost Decade.

Simple averages can be misleading

Suppose an investment gains 20% one year and loses 20% the next. The simple average of those two annual returns is 0%, but $100 would become $96, not $100. Percentage gains and losses do not cancel symmetrically because they are applied to different account values.

Withdrawals make the gap larger

If you are also withdrawing money for living expenses, a poor early sequence can create additional pressure. More shares may have to be sold after a decline, leaving fewer shares available to participate in a later recovery.

What can help manage sequence risk?

Keeping adequate short-term reserves.
Separating near-term spending assets from long-term growth assets.
Using flexible withdrawal rules rather than assuming spending can never change.
Matching essential expenses with dependable income sources where appropriate.
Avoiding overconcentration in a single asset class.

Average return still matters — it just is not enough

The point is not that market investing fails. Growth assets can play an important role in long retirements. The point is that retirement planning needs to consider volatility, timing, withdrawals, taxes and income needs together rather than relying on one historical average-return number.

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Educational information only. Investment returns are not guaranteed. King Life does not provide individualized investment, securities, tax or legal advice.