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.
If you're still working
Years you're still contributing don't get the three-way ordering - a crash while you're still buying in is a discount, not a disaster, so sequence risk during accumulation cuts the other way and mixing the two would muddy the lesson. Instead, your current portfolio grows deterministically at your average return through your contribution years to produce a realistic balance at retirement, which then becomes the starting point for the sequence-risk test on your actual withdrawal years.
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.