For decades, retirement planning has been anchored in a deceptively simple premise: equities deliver attractive long-term returns. Historical data suggest that diversified stock markets have compounded at roughly seven to ten percent per year. From a purely mathematical perspective, the conclusion appears straightforward. Invest early, stay invested, allow compounding to work, and the outcome should take care of itself.

Elegant logic. Flawed assumption.

Because retirement success is not determined by average returns alone. It is determined just as much by timing.

Two investors can experience identical average performance over twenty years and still end up in entirely different financial positions. One benefits from strong early returns, builds a capital buffer, and absorbs later downturns with relative ease. The other encounters losses at the beginning, sees capital shrink, and only later participates in the recovery. On paper, both achieved the same average. In practice, one retires comfortably while the other struggles to recover.

This asymmetry is known as sequence-of-returns risk. It describes a simple but often overlooked reality: the order in which returns occur can materially alter financial outcomes, particularly once withdrawals begin.

During the accumulation phase, volatility is manageable, sometimes even beneficial. Regular contributions allow investors to buy more shares at lower prices. Market declines function as discounts. Time and new capital smooth out temporary losses. But once retirement begins and portfolios must generate income, the dynamic changes fundamentally. Negative returns early in the withdrawal phase can cause disproportionate and irreversible damage. Selling assets during downturns permanently reduces the capital base. Subsequent recoveries then compound on a smaller foundation. The loss is not merely temporary. It is structural.

This distinction becomes particularly relevant when investors anchor their strategy to a single historical winner. Over the past decades, the US equity market has been exceptionally strong. Large-cap American stocks outperformed many international peers, and broad US indices slightly exceeded the long-term returns of global portfolios. It is tempting to interpret this as a structural superiority and to concentrate retirement assets accordingly.

Yet such conclusions conflate hindsight with robustness.

Markets move in cycles. Leadership rotates between regions, currencies fluctuate, and valuation regimes change. Periods of outperformance are often followed by extended phases of stagnation or mean reversion. A portfolio concentrated in one country implicitly assumes that the future will resemble the recent past. History rarely supports such certainty.

Global equity benchmarks, by contrast, have typically delivered returns that were only marginally lower over long horizons, but with broader diversification across regions and economic drivers. The performance gap between a single dominant market and a globally diversified allocation has often been measured in fractions of a percent per year. The reduction in concentration risk, however, has been far more meaningful. And for retirees, risk concentration matters more than marginal return differences.

In the withdrawal phase, resilience outweighs optimisation. A portfolio that avoids extreme early losses is often superior to one that occasionally produces slightly higher averages. The objective is not to win performance rankings. The objective is to sustain predictable cash flows over decades.

This is why diversification, while rarely exciting, remains structurally powerful. It reduces dependence on any single economy, sector, or currency. It smooths the range of possible outcomes. It lowers the probability that severe drawdowns coincide with the most fragile period of an investor’s life cycle. In other words, it improves survivability.

Seen through this lens, retirement planning becomes less about product selection and more about portfolio architecture. The decisive questions are not which index outperformed historically, but rather: how stable must income be, how long must capital last, what level of withdrawals is sustainable, and how much liquidity is available to bridge adverse market phases. These considerations extend beyond investment choice. They require coordination between assets, liabilities, time horizons, and behavioural tolerance for risk.

Ultimately, sequence-of-returns risk challenges one of the most persistent misconceptions in personal finance: that long-term averages are sufficient for planning. They are not. Retirement is lived year by year, not in statistical aggregates. Cash flows do not wait for markets to recover.

The implication is both simple and sobering. Returns matter. But their sequence matters more.

A retirement strategy built solely on historical performance may look convincing in spreadsheets. A strategy built around robustness, diversification, and disciplined planning is far more likely to hold up in real life.