Chartered Retirement Planning Counselor (CRPC) Practice Exam 2025 – Comprehensive All-in-One Guide for Exam Success!

Sequence of return risk is especially significant for individuals who have recently retired and begun taking distributions from their retirement accounts. This risk refers to the potential negative impact that the order of investment returns can have on an individual's portfolio.

When a retiree starts withdrawing funds, if the market faces a downturn early in retirement, it can significantly reduce the longevity of their savings. This is because, during periods of negative returns, the retiree is selling assets at a loss to fund their living expenses. Consequently, the portfolio may suffer from diminished growth potential when the market eventually rebounds, as there are fewer assets remaining to benefit from the market recovery.

In contrast, those who have just started a new job or changed their investment strategy may not be facing the immediate financial pressure of withdrawals, so the sequence of return risk is less critical for them. Similarly, individuals who increase their equity exposure are primarily concerned with their asset allocation and potential market volatility rather than the timing of their withdrawals, which is central to understand sequence of return risk. Thus, retirees withdrawing distributions are uniquely vulnerable to these risks, making that situation the most impactful regarding sequence of return risk.