The risk that poor investment returns early in retirement or just after an exit deplete a portfolio even when long-run average returns look acceptable.
Sequence of return risk is the damage from bad markets in the first years of withdrawals. Two portfolios can earn the same average return over 30 years. The one that loses money first, while the owner is spending, can run out. The one that gains first can last.
William Bengen's 1994 safe-withdrawal work made this visible. Later research by Michael Kitces and Wade Pfau shows that the first decade of withdrawals drives most of the outcome. Selling shares after a drop locks in the loss. Those shares never recapture the rebound.
Business owners meet this risk at the moment they turn sale proceeds into a spendable portfolio. Conservative return assumptions, cash reserves, and flexible spending reduce the chance that an early market drop, stacked on debt payoff or a large gift, ends the plan.