SignalFrogTwo investors retire in the same year. They have saved the same amount, they withdraw the same sum each month, and over twenty years both portfolios produce exactly the same annual results. Only in a different order.
One of them has money left over. The other runs out.
Sequence of returns
This effect is called sequence-of-returns risk, and it is why averages mislead once you start drawing down. While you are paying in, a downturn works in your favour: the next instalments buy more cheaply. Once you withdraw, it reverses. Now shares have to be sold to cover living costs, and a weak year requires more of them than a good one.
Those shares are gone for good. If the market recovers later, it recovers on a smaller holding. A loss from an early weak year keeps compounding with every withdrawal instead of evening out.
That puts the critical window somewhere most people do not look for it: the five or so years before retirement and the first ten after it. What happens earlier has time to smooth out. What happens later hits a portfolio that has already shrunk.
What that means in practice
The usual answer is to reduce the equity share with age. That is correct and only half an answer, because it says nothing about when or how fast. Cutting to a third in equities ten years out buys calm at a high price. Staying fully invested until the last working day is a bet that the years around the transition happen to be uneventful.
The real task sits between those two mistakes, and it is not an arithmetic problem but a question of perception: what state are markets in right now, and has anything about it changed?
A second point gets underrated: the cash buffer. Holding two or three years of withdrawals outside the portfolio means you do not have to sell in a weak year. That does not remove sequence risk, but it defuses it, because the withdrawal is decoupled from the market.
Why risk awareness grows more important with age
A 40-year-old can sit out a mistake. He has working years, ongoing contributions and time. All three cushions disappear at once in retirement.
What remains is the option of noticing early that the environment has shifted. That is where Boiling Frog comes in. It watches interest rates, credit markets, liquidity and geopolitical tension, and condenses them into a daily reading. The closer retirement gets, the more that reading is worth, and the less time there is to miss it.