One of the most common phrases I hear from people approaching retirement sounds reasonable on the surface:
“I’ll just live off the returns.”
It sounds logical. If your portfolio grows at 6 percent, 7 percent, or even more, why wouldn’t you simply take what the market gives you and leave the rest invested?
On paper, it looks clean, simple, and efficient.
In real life, it can quietly destroy a retirement.
The problem is not that returns are bad. The problem is that returns are unpredictable, while retirement expenses are not. That mismatch creates one of the most dangerous risks retirees face, often without realizing it until the damage is already done.
The Hidden Assumption Behind “Living Off Returns”
When someone says they will live off returns, they are making several assumptions, whether they realize it or not.
They are assuming:
- The market will cooperate every year
- Returns will arrive when income is needed
- Down years will not coincide with withdrawals
- Volatility will average out quickly
- They will not panic or change behavior during downturns
Markets do not work that way.
The stock market does not send paychecks. It does not care when your mortgage, insurance, groceries, or healthcare bills are due. It moves on its own schedule, not yours.
That difference matters far more in retirement than during working years.
Accumulation and Retirement Are Two Different Games
During your working years, volatility is often your friend. You are contributing regularly. You are buying more shares when prices are down. Time works in your favor.
Retirement flips that equation.
Instead of adding money, you are now withdrawing money. That one change turns volatility from an advantage into a threat.
This is where many people go wrong. They try to use accumulation strategies in a distribution phase. What worked to build wealth does not automatically work to preserve it or turn it into income.
A Simple Example That Explains the Risk
Let’s walk through a realistic example.
Imagine you retire with a $1,000,000 portfolio.
You plan to withdraw $60,000 per year. That feels reasonable. The market averages 7 percent long term, right?
Now let’s say the first year of retirement looks like this:
- The market drops 20 percent
- Your portfolio falls to $800,000
- You still need $60,000 to live
You are now forced to sell investments at depressed prices to create income.
After the withdrawal, your portfolio is closer to $740,000.
Here is the critical part that many people miss:
Those shares you sold are gone forever.
When the market recovers, you no longer own as many shares to participate in that recovery. Even if the market rebounds strongly, your portfolio may never fully catch up.
This is not a theory. This is math.
This Is Sequence of Returns Risk
What you just saw is called sequence of returns risk.
It means the order in which returns occur matters more than the average return itself when you are withdrawing money.
Two retirees can earn the same average return over 20 or 30 years and have very different outcomes based solely on when negative years occur.
Bad markets early in retirement cause the most damage because withdrawals lock in losses at the worst possible time.
This is how people can do everything right, save diligently, invest wisely, and still run into trouble later in life.
Why Averages Are Misleading in Retirement
People love averages. Advisors talk about average returns. Financial media loves long term charts. But averages hide reality.
Retirement does not happen in averages. It happens in real time.
You experience one year at a time. Bills show up monthly. Healthcare costs rise whether markets are up or down.
A portfolio that averages 7 percent does not give you 7 percent every year. Some years are great. Some are terrible. Retirement planning must account for that variability.
If your income plan depends on markets behaving nicely, it is not a plan. It is a hope.
Why “I’ll Just Adjust Spending” Is Not Enough
Some people respond by saying they will simply spend less in down years.
That sounds reasonable too, but it often falls apart in practice.
Many retirement expenses are not optional:
Cutting discretionary spending helps, but it does not eliminate the need for reliable income.
Health issues also tend to increase with age, not decrease. The ability to be flexible financially often shrinks over time.
A retirement plan that relies on constant adjustment places unnecessary stress on people during a phase of life that should be simpler, not more fragile.
Income Is Not the Same as Returns
This is one of the most important distinctions in retirement planning.
Returns are what your investments earn on paper.
Income is money that shows up reliably to pay expenses.
They are not the same thing.
A portfolio can be up on paper while still being a poor source of income if withdrawals are poorly timed or overly dependent on market performance.
Income planning focuses on:
- When money is needed
- Where it comes from
- How predictable it is
- How it behaves in down markets
Returns alone do not address any of those questions.
The Emotional Side of Market Dependence
There is also a psychological cost to living off returns.
When income depends entirely on the market:
- Every downturn feels personal
- Volatility creates anxiety
- Fear leads to poor decisions
- Long term plans get abandoned at the worst moments
I have seen people abandon sound strategies because the emotional pressure became too much. A plan that looks good on paper but fails emotionally is still a failed plan.
Good retirement planning accounts for human behavior, not just math.
A Better Way to Think About Retirement Planning
Retirement is not about maximizing returns. It is about creating sustainable income with protection.
That often means:
- Separating income assets from growth assets
- Reducing reliance on selling during down markets
- Creating cash flow that does not depend on perfect timing
- Protecting against early retirement market risk
- Building flexibility into withdrawals, not panic
Growth still matters. It just no longer does all the work.
Think of retirement like flying a plane. Growth gets you off the ground. Income and protection help you land safely and stay there.
The Goal Is Consistency, Not Perfection
The most successful retirements are not built on aggressive assumptions. They are built on consistency.
Consistency of income.
Consistency of expectations.
Consistency of planning.
Markets will rise and fall. That part is guaranteed. Your plan should not fall apart because of it.
Final Thoughts
Living off returns sounds smart because it simplifies a complex problem. But simplification can be dangerous when it ignores real world risks.
Retirement is not about guessing where the market will go next. It is about controlling what you can control.
Income timing.
Risk exposure.
Withdrawal strategy.
Behavior under stress.
If your retirement plan depends entirely on markets behaving, it is not a plan. It is a gamble.
A well-built retirement plan allows you to enjoy your life without watching the market every day, without worrying about the next downturn, and without hoping averages save you.
That peace of mind is the real return most people are looking for.
