Sequence of returns risk
Three retirees. Same average return. Same portfolio. Same withdrawals. Wildly different outcomes, depending on whether the bad years come first or last.
$1.1M
$70k
25 yrs
Lucky sequence
--
Steady 7%
--
Unlucky sequence
--
Lucky: gains early, losses late
Steady: 7% every year
Unlucky: losses early, gains late
Annual returns used (same set, reversed order)
Lucky sequence
Unlucky sequence
All three scenarios use identical average annual returns. The only difference is the order. The "unlucky" retiree faces big losses in years 1-5 while withdrawing, and the portfolio never recovers. This model uses simplified compound growth with constant returns. Real markets fluctuate. Not financial advice.