Quiet Zeros

Calculators / Saving & investing

Sequence-of-returns risk

Average return is a lie of omission: the ORDER of good and bad years decides whether a retirement portfolio survives. Same returns, three different orders. Nothing you type leaves this page.

$

Enter $10,000 to $100,000,000.

$

The classic 4% rule on $1M. Withdrawals are what make sequence matter.

%
%

Diversified stock portfolios historically swing roughly plus/minus 12-15% around their average.

yrs

Gap between best and worst order

—

Crash-first ending

—

Steady ending

—

Boom-first ending

—

Same returns, three orders - balance over time

Balance by year, all three orders

How this is calculated

We build one fixed set of yearly returns whose average matches your number - spread across your volatility - then run the identical set in three orders: worst years first, steady, best years first. Every path earns exactly the same returns overall. The only difference is sequence.

balancey+1 = (balancey - withdrawal) x (1 + ry)

Why order matters once you withdraw

Selling shares in a down year converts a temporary loss into a permanent one - those shares are gone before the recovery arrives. Without withdrawals, order is irrelevant (multiplication commutes); with withdrawals, early losses compound against you forever. That is sequence-of-returns risk, and it is why two retirees with identical portfolios and identical average returns can end 30 years apart by millions.

What to do about it

The standard defenses: hold 1-3 years of spending in cash or bonds so down years aren't sale years; flex withdrawals downward in crashes; or work one more year past a bear market's start. The gap shown above is the price of ignoring it.

Related tools