Retirement · Sequence risk
Sequence of returns risk calculator.
Run the same list of yearly returns twice, once as entered and once reversed. With withdrawals, the order changes where you end up, even though the average does not.
Same ten returns, same $50,000 withdrawals, opposite order: $637,899 left one way and $875,282 the other. With no withdrawals both orders end at $1,450,613. The order only matters because money is being taken out.
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Why order matters when you withdraw
Without withdrawals, a portfolio’s ending value is the starting value times each year’s growth factor multiplied together, and multiplication does not care about order. With withdrawals it does: a fixed dollar withdrawal after a loss takes a bigger share of a smaller balance, and those shares are gone before any recovery. That is sequence-of-returns risk. Poor returns early in retirement are worse than the same poor returns late.
Worked example. Start with $1,000,000 and withdraw $50,000 at the start of year 1, rising 2% a year. Returns for ten years: −20, −10, 5, 10, 15, 20, 12, 8, −5, 10 (average 4.5%, compound 3.79% a year). In that order you finish with $637,899. Reverse the list and you finish with $875,282, which is $237,383 more, from the same returns and the same withdrawals. With no withdrawals both orders finish at $1,450,613.
The return list is an invented illustration, not historical data. William Bengen’s 4% figure came from his worst historical case, a US retiree in 1968 who retired at a market peak before a long recession and high inflation, per Wikipedia. Paste in your own scenarios to test how a bad start would affect your plan. This does not model taxes, fees, spending changes or income from other sources.
Frequently asked questions
What is sequence of returns risk?
The risk that the order of investment returns, not just their average, determines whether a portfolio survives once you are withdrawing from it. Early losses combined with withdrawals do the most damage.
Why do both orders match without withdrawals?
Growth multiplies, and multiplication gives the same product in any order. The difference appears only when money is taken out between the years.
Are the default returns real market history?
No. They are an invented example chosen to show the effect. Enter your own scenarios, including worst cases you want to test.
How can I reduce sequence risk?
Options people discuss include a lower starting withdrawal rate, spending less after poor years, or holding more in stable assets near retirement. This tool shows the effect only; it does not tell you which to use.
Sources
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Runs entirely in your browser. Nothing you type is sent or stored. Formulas are standard arithmetic; assumptions such as returns are yours to set.
Not advice
Illustration with invented returns, not a forecast. Not financial, tax or investment advice.