Sequence of Returns Risk: Why Passive Income Matters More As You Near Retirement
Sequence of Returns Risk: Why Passive Income Matters More As You Near Retirement
Cereus Real Estate | August 2, 2026
Retirement planning often focuses on one big question: How much money do I need to retire?
But there is another question that can be just as important:
What happens to your portfolio during the first few years of retirement?
Two investors can retire with the same portfolio balance and experience dramatically different outcomes. The difference may come down to when their investment returns occur.
This is known as sequence of returns risk.
For physicians, executives, business owners, and other high-income professionals, this risk can become especially important as retirement approaches. During your working years, a market decline may be uncomfortable because you still have income coming in and years to recover.
Retirement changes the equation.
Once you begin withdrawing money from your investments, a significant market decline early in retirement can permanently damage the amount of capital available for future years.
That is one reason investors increasingly look beyond portfolio growth and consider income-producing investments, including passive real estate investing and multifamily real estate syndications.
What Is Sequence of Returns Risk?
Sequence of returns risk is the risk that the order in which investment returns occur will negatively affect your portfolio when you are withdrawing money.
Consider two hypothetical investors.
Both retire with $1 million.
Both experience the same average annual return over a long period.
However, Investor A experiences several poor years immediately after retirement, while Investor B experiences strong returns first and weaker returns later.
Because Investor A is withdrawing money during the downturn, fewer assets remain available to participate in the eventual recovery.
This creates a critical distinction:
Average returns alone do not tell the whole retirement story.
The timing of those returns matters.
Why Withdrawals Make Market Declines More Dangerous
During your accumulation years, you generally contribute money to your portfolio.
When markets fall, those contributions can purchase investments at lower prices. You have time for the portfolio to recover.
During retirement, the direction of cash flow reverses.
Instead of putting money into the portfolio, you are taking money out.
If you sell investments after a significant decline to fund living expenses, you may lock in losses and reduce the amount of capital available for future growth.
This is sometimes referred to as sequence of returns risk because the same series of returns can produce different outcomes depending on the order in which they occur.
Why Sequence of Returns Risk Matters More Near Retirement
The closer you get to retirement, the less time you have to recover from a major portfolio decline.
Imagine someone who is 35 years old and experiences a 25% market decline.
That investor may have decades of employment income, contributions, and investment growth ahead.
Now imagine someone who is 65 and recently retired.
The same decline may have a much larger impact because that investor may already be withdrawing funds from the portfolio.
This is why retirement planning should evolve over time.
During Your Working Years
Your primary objective may be:
Building wealth
Maximizing savings
Increasing investment contributions
Growing your retirement accounts
Taking advantage of long-term compounding
As Retirement Approaches
The priorities may gradually expand to include:
Protecting accumulated capital
Creating predictable cash flow
Diversifying sources of income
Managing withdrawal rates
Reducing dependence on selling assets during downturns
Planning for taxes and inflation
Building a portfolio that can support multiple market environments
This shift from accumulation to income and preservation is an important part of retirement planning.
The Problem With Relying Entirely on Portfolio Withdrawals
A traditional retirement strategy may involve building a portfolio of stocks and bonds and then withdrawing a percentage each year.
That approach can work, but it can also create challenges when markets experience significant volatility.
Suppose your retirement expenses require $80,000 per year
If your investment portfolio falls substantially during the first year of retirement, you still need money for housing, healthcare, travel, family expenses, and everyday living.
The market does not adjust your expenses simply because your portfolio declined.
You may therefore have to sell investments while prices are down.
This is where income-producing assets can become valuable.
Instead of depending entirely on asset appreciation, an investor can build a portfolio that generates cash flow from multiple sources.
Why Passive Income Can Help
Passive income does not eliminate investment risk, but it can provide another source of cash flow that may reduce the need to sell growth assets during unfavorable market conditions.
For example, an investor may receive income from:
Rental real estate
Multifamily properties
Real estate syndications
Dividend-paying investments
Bonds and fixed-income investments
Private businesses or other income-producing assets
The goal isn't necessarily to replace a traditional investment portfolio.
Instead, diversification can help create multiple sources of retirement income.
For physicians especially, this can be attractive because building additional income streams can reduce the pressure to continue working simply because the investment portfolio needs more time to recover.
Passive Real Estate Investing and Retirement Income
Real estate is often considered by investors who want exposure to an asset that can potentially generate income as well as long-term appreciation.
Passive real estate investing takes that concept a step further.
Rather than purchasing and managing a rental property personally, investors may participate in professionally managed real estate investments.
One structure commonly used for this is a real estate syndication.
In a syndication, multiple investors pool capital to participate in a larger property or portfolio. Depending on the investment structure, investors may receive distributions from property operations and potentially participate in appreciation when an asset is sold or refinanced.
The important distinction is that these investments are not risk-free, and distributions are not guaranteed.
The value is in the potential combination of:
Income + diversification + long-term real estate exposure.
What Is Real Estate Syndication?
A real estate syndication allows multiple investors to collectively invest in a property or real estate project.
A sponsor or investment team generally identifies and acquires the property, arranges financing, oversees operations, and manages the business plan.
Investors contribute capital and, depending on the offering, may receive a share of the property's income and potential appreciation.
For investors who do not want to become landlords, this can offer a more passive approach to real estate ownership.
However, investors should carefully review the offering documents, sponsor experience, investment strategy, fees, financing, projected returns, risks, and exit assumptions before investing.
Why Multifamily Real Estate Can Be Attractive for Income-Focused Investors
Multifamily real estate investing is one area investors may consider when evaluating income-producing real estate.
Multifamily properties can generate revenue through rents paid by residents.
A well-managed property may also have opportunities to increase revenue, control expenses, improve occupancy, and enhance the property's overall value.
For a passive investor, the potential benefit is participation in the economics of a real estate asset without personally handling:
Tenant communication
Property maintenance
Leasing
Rent collection
Vendor management
Day-to-day property operations
The investment still carries risks, including vacancy, operating expenses, interest rates, market conditions, financing risk, and the possibility that projected returns are not achieved.
Passive Income for Doctors: Why Physicians May Want More Than a Retirement Account
Physicians often spend decades building highly specialized careers.
The challenge is that a large income does not automatically create financial independence.
A physician may have substantial earnings while still depending heavily on clinical income.
That creates a potential vulnerability.
If employment income stops, where does the cash flow come from?
This is why passive income for doctors has become an important financial planning topic.
The objective is not necessarily to leave medicine early.
For some physicians, financial independence simply means having more choices.
It can mean:
Working fewer clinical hours
Taking extended time away from practice
Spending more time with family
Pursuing another professional interest
Saying no to additional shifts
Continuing to practice because you want to, rather than because you have to
That is the broader idea behind physician financial freedom.
Passive Income Strategies for Doctors
Doctors evaluating passive income strategies may consider a combination of investments rather than relying on a single asset class.
Potential approaches can include:
1. Public Market Investments
Stocks, bonds, ETFs, and other market-based investments can play an important role in long-term wealth building.
They also provide liquidity that some private investments do not.
2. Real Estate
Direct ownership, REITs, and private real estate investments can provide different levels of exposure to property markets.
3. Real Estate Syndications
For qualified investors, syndications can provide access to larger real estate opportunities without requiring investors to manage the property themselves.
4. Retirement Accounts
Tax-advantaged retirement accounts can remain an important part of an overall retirement strategy.
5. Multiple Income Streams
Building income from different sources can reduce dependence on any single investment or employment income.
The right combination depends on an individual's goals, risk tolerance, liquidity needs, tax situation, and time horizon.
Sequence of Returns Risk and Real Estate
Real estate does not magically eliminate sequence of returns risk.
Property values can decline. Occupancy can fall. Expenses can rise. Financing can become more expensive. Distributions can be reduced or suspended.
However, income-producing real estate can play a different role in a diversified portfolio than investments that depend primarily on selling assets for cash.
For example, a multifamily property may generate rental income regardless of whether public stock markets are having a strong or weak year.
That does not mean the income is guaranteed.
It means the source of potential cash flow is different.
This distinction can become valuable when constructing a retirement portfolio designed to withstand different economic environments.
Real Estate vs. Stock Market Returns: Why the Comparison Isn't Always Simple
Investors sometimes ask:
"Which produces better returns: real estate or stocks?"
There is no universal answer.
The two investments have different characteristics.
Stocks generally offer:
High liquidity
Easy diversification
Transparent pricing
Simple access
Potential for long-term capital appreciation
Private real estate may offer:
Potential recurring income
Exposure to physical assets
Potential appreciation
Potential tax benefits depending on the investment and investor's circumstances
Lower liquidity
Greater investment minimums
Property-specific and sponsor-specific risks
Instead of asking which asset is "better," investors may want to ask:
"What role should each asset play in my overall financial plan?"
That is a more useful question when thinking about retirement.
How Accredited Investors Can Build Wealth With Multiple Income Sources
Private real estate investments are not available to everyone.
Certain offerings are limited to accredited investors, depending on the securities exemption and offering structure.
An accredited investor generally must satisfy specific income, net worth, professional, or other regulatory criteria.
Before investing, individuals should verify that they meet the applicable requirements and understand the risks involved.
For qualified investors, private real estate can become one component of a broader wealth strategy.
The goal may be to build a portfolio that includes:
Growth assets + income-producing assets + liquidity + diversification.
This approach may help investors avoid relying entirely on one source of income during retirement.
Real Estate Wealth Building for NRI Investors
For physicians and other professionals living outside the United States, including NRI investors, investing in U.S. real estate can introduce additional considerations.
Real estate wealth building for NRI investors may involve evaluating:
U.S. investment structures
Tax implications
Currency exposure
Investment eligibility
Cross-border reporting requirements
Distribution procedures
Estate planning considerations
Liquidity
Sponsor experience
NRI investors should obtain advice from qualified legal, tax, and financial professionals who understand their specific circumstances before making an investment decision.
Physician Investors Building Generational Wealth
Retirement planning does not have to stop at replacing your current income.
For some investors, the larger objective is building assets that can potentially benefit their families for decades.
Physician investors building generational wealth may consider strategies that focus on long-term ownership rather than short-term speculation.
Real estate can be part of that conversation because properties may generate income while also potentially appreciating over time.
But generational wealth is ultimately about more than choosing one investment.
It can involve:
Consistent investing
Diversification
Risk management
Tax planning
Estate planning
Financial education
Long-term decision-making
The earlier these pieces are considered, the more flexibility investors may have later.
How to Reduce Sequence of Returns Risk
No strategy can completely eliminate market risk.
However, investors can consider several approaches to make their retirement plan more resilient.
1. Build an Emergency and Liquidity Reserve
Having accessible cash or liquid investments can reduce the need to sell long-term assets during temporary market declines.
2. Diversify Income Sources
Instead of depending entirely on stock sales, consider whether other assets can contribute to retirement cash flow.
3. Maintain a Flexible Withdrawal Strategy
Rigid withdrawals may create additional pressure during severe market downturns.
A flexible approach may allow spending to adjust when market conditions change.
4. Consider Income-Producing Investments
Assets that potentially generate cash flow can play a role in a diversified retirement strategy.
5. Review Your Portfolio Before Retirement
Risk tolerance should not remain static.
As retirement approaches, investors may want to reassess their asset allocation, liquidity, income requirements, and downside exposure.
6. Understand Your Investments
Never invest simply because an investment promises attractive returns.
Understand how the investment makes money, where the risks are, how cash is distributed, and what happens if the original projections are not achieved.
A Retirement Portfolio Should Be Built Around More Than a Number
A retirement portfolio is not simply a pile of money.
It is a system designed to support your life.
That means asking questions such as:
How much income will I need each year?
How much of that income must come from investments?
What happens if markets decline during my first five years of retirement?
How much liquidity do I need?
Which investments generate income?
How diversified are my income sources?
How much volatility can I tolerate?
What assets could potentially support my family after I'm gone?
These questions can be more useful than simply asking whether you have reached a specific portfolio balance.
Why Passive Income Can Matter More Than Ever Near Retirement
The closer you get to retirement, the more important cash flow can become.
During your career, your paycheck may be your primary source of income.
After retirement, your portfolio takes on a larger role.
If every dollar of retirement spending requires selling investments, market volatility can become a major concern.
But if part of your income comes from investments that potentially generate cash flow, you may have greater flexibility.
That is one reason passive income strategies for doctors and other high-income professionals deserve consideration well before retirement.
The objective is not to chase the highest possible return.
It is to create a financial structure that can potentially support your lifestyle across different market conditions.
A Practical Example
Imagine a physician retires with a diversified portfolio and needs $100,000 annually to cover expenses.
If the portfolio experiences a major decline immediately after retirement, selling investments to cover that $100,000 could mean selling a larger percentage of the remaining portfolio.
Now imagine the physician also has income from a diversified collection of real estate investments.
That income may cover a portion of annual expenses.
The physician may still need to withdraw from the portfolio, but potentially less.
Again, this does not guarantee protection from losses.
It illustrates why investors may want to think about retirement in terms of cash-flow planning, rather than portfolio value alone.
The Bigger Picture: Financial Freedom Is About Options
For physicians, financial freedom does not necessarily mean abandoning medicine.
It can mean having choices.
If your investments generate enough income to cover a meaningful portion of your expenses, you may have more freedom to decide how you want to spend your time.
That could mean practicing medicine full-time.
It could mean working part-time.
It could mean pursuing another business.
Or it could simply mean spending more time with the people and activities that matter most.
The goal of investing is not just to accumulate a larger number.
The goal is to create options.
Final Thoughts
Sequence of returns risk is one of the reasons retirement planning should change as you move closer to leaving the workforce.
A portfolio can experience the same long-term average return and produce very different outcomes depending on when those returns occur.
That makes income, liquidity, diversification, and withdrawal strategy important considerations.
For physicians and accredited investors, passive real estate investing, including carefully evaluated multifamily real estate opportunities, may be one potential component of a broader retirement strategy.
Real estate is not a guaranteed source of income, and private investments involve meaningful risks. Investors should evaluate each opportunity independently and consult qualified financial, tax, and legal professionals before investing.
At Cereus Real Estate, the focus is on helping investors understand opportunities in multifamily real estate and evaluate whether passive real estate investing fits within their broader wealth-building objectives.
Because the ultimate objective isn't simply to retire.
It's to have the financial freedom to decide what comes next.
Frequently Asked Questions
What is sequence of returns risk?
Sequence of returns risk is the risk that the order of investment returns can negatively affect a retirement portfolio when withdrawals are being made. Poor returns early in retirement can have a larger impact because withdrawals may occur while asset values are depressed.
Why is sequence of returns risk important for physicians?
Physicians may accumulate substantial retirement assets but still depend heavily on active clinical income. Once they reduce or stop working, investment withdrawals become more important. Creating multiple potential income sources may help reduce dependence on selling investments during market downturns.
Can passive real estate investing reduce sequence of returns risk?
Passive real estate investing cannot eliminate sequence of returns risk or guarantee income. However, income-producing real estate may provide another potential source of cash flow, which could reduce the need to sell other investments during unfavorable market conditions.
What is a real estate syndication?
A real estate syndication pools capital from multiple investors to invest in a property or real estate project. A sponsor typically manages the acquisition and operations while investors participate according to the offering's structure.
Is multifamily real estate investing passive?
For investors who participate through a professionally managed syndication, multifamily investing can be relatively passive compared with owning and managing rental properties directly. However, passive does not mean risk-free, and investors should understand the specific responsibilities, risks, fees, and liquidity restrictions associated with the investment.
What is passive income for doctors?
Passive income for doctors refers to income generated from investments or other assets that do not require the physician to actively exchange clinical time for every dollar earned. Examples can include certain real estate investments, dividends, interest, and other income-producing assets.
Can accredited investors invest in real estate syndications?
Some real estate syndications are structured for accredited investors, while others may be available under different securities exemptions. Eligibility depends on the specific offering and applicable regulations.
Should I choose real estate instead of stocks for retirement?
It does not have to be an either-or decision. Stocks and real estate have different risk, liquidity, income, and growth characteristics. A diversified strategy may use multiple asset classes based on an investor's goals, risk tolerance, time horizon, and liquidity needs.
Daniel Shin, MD
