Why Oklahoma Retirees Face a Unique Sequence of Returns Risk

March 14, 2025

The timing of market declines matters more than their magnitude for retirement investors. Here is why Oklahoma retirees need to think differently about this risk — and what a rules-driven strategy does about it.

There is a risk in retirement that most financial advisors in Oklahoma City never discuss with their clients. It is not market risk in the conventional sense — the possibility that your portfolio loses value. It is something more specific, more dangerous, and more relevant to anyone within ten years of retirement or already drawing income from their portfolio.

It is called sequence of returns risk. And understanding it may be the most important thing a retirement investor in Oklahoma can do before their first withdrawal.

The Same Average Return, Completely Different Outcomes

Consider two investors, both retiring at 65 with $1,000,000 and withdrawing $60,000 per year. Both earn an average annual return of 6% over 20 years. The only difference is the sequence in which those returns arrive.

Investor A experiences strong returns in the early years of retirement and weaker returns later. Investor B experiences the same returns in reverse — weak early, strong late. Same average. Same withdrawal amount. Same starting balance. But Investor B runs out of money before age 80. Investor A finishes with more than $1.5 million.

This is not a hypothetical. It is the mathematical reality of withdrawing from a portfolio during a declining market. When you sell shares to fund living expenses during a downturn, you lock in losses permanently. Those shares are gone. They cannot recover when the market rebounds. The portfolio is permanently impaired — and the damage compounds with every subsequent withdrawal.

Why Oklahoma Investors Are Particularly Exposed

Oklahoma's economy has historically been tied to energy sector performance. When energy prices decline sharply — as they did in 2015–2016 and again in 2020 — Oklahoma households often face a dual pressure: portfolio losses at the same time as broader economic stress. For retirees drawing income from their portfolios, this combination is especially dangerous.

Beyond the local economic factor, the broader issue is that most retirement portfolios in Oklahoma are built on a static allocation model — a fixed percentage in equities, a fixed percentage in bonds, rebalanced annually. This model does not distinguish between market environments. It holds the same allocation whether conditions favor growth or signal significant risk.

A static 60/40 portfolio in 2022 lost approximately 16% — one of the worst years for the traditional balanced portfolio in modern history. For a retiree drawing $80,000 per year from a $1.5 million portfolio, a 16% decline in the first year of retirement reduces the portfolio to approximately $1,180,000 before the next year's withdrawals even begin. The math of recovery from that starting point is significantly harder than most investors realize.

The Five-Year Window

Research in retirement income planning consistently identifies the five years before and five years after the retirement date as the highest-risk period for sequence of returns damage. This is the window when the portfolio is at its largest relative to annual withdrawals — meaning a significant decline has the greatest absolute impact — and when the investor has the least time to recover before withdrawals begin.

A retiree who experiences a 30% market decline at age 62, three years before their planned retirement date, has time to adjust — delay retirement, increase savings, reduce planned withdrawals. A retiree who experiences the same decline at age 67, two years into drawing income, has no such options. The damage is done.

What a Rules-Driven Approach Does Differently

The core problem with sequence of returns risk is that a static portfolio cannot respond to changing conditions. It holds its allocation regardless of what the market is signaling. A rules-driven approach — one that adjusts equity and fixed income exposure based on objective market conditions — is specifically designed to address this vulnerability.

Rulicent's SectorPulse™ system continuously monitors market conditions and adjusts sector exposure accordingly. When the Composite Risk Index signals deteriorating conditions, the portfolio reduces equity exposure before the full decline materializes. When conditions improve, the portfolio re-engages. This is not market timing in the speculative sense — it is systematic risk management based on objective signals.

The goal is not to eliminate volatility. It is to reduce the probability of a catastrophic sequence-of-returns event during the critical window when it would do the most permanent damage to a retirement portfolio.

The Question to Ask Your Advisor

If you are within ten years of retirement or already drawing income from your portfolio, ask your current advisor one question: What does your strategy do differently when market conditions deteriorate?

If the answer is "we stay the course" or "we rebalance back to target," you are holding a static allocation that cannot respond to the conditions that create sequence of returns risk. That is not a strategy for retirement. It is a strategy for accumulation — applied to a fundamentally different problem.

The Portfolio Evaluation at Rulicent begins by calculating your Required Return and then stress-testing your current allocation against a range of sequence scenarios. If there is a gap — if your current strategy cannot realistically deliver your Required Return even under adverse early-retirement conditions — you will know it before it matters.