Sequence of Returns Risk Visualizer
Example: Portfolio at retirement: 1000000 $ · Annual withdrawal: 50000 $ · Average annual return (both scenarios): 6 % · Retirement simulation years: 20
| Sequence-of-returns dollar impact | $1,786,565 |
| Final balance — good years first | $1,805,146 |
| Final balance — bad years first | $18,581 |
Worked example
Starting with $1,000,000 and withdrawing $50,000/year, averaging 6% return over 20 years: good years first yields approximately $1,230,000 at the end. Bad years first (losing 4% in the first half, gaining 16% in the second half — same 6% average) leaves only about $687,000. The sequence gap is $543,000 — despite identical arithmetic average returns.
Frequently asked questions
Why does sequence matter so much in retirement?
When you withdraw from a portfolio during a down market, you sell shares at depressed prices, permanently reducing the number of shares available to recover. In accumulation, a crash followed by recovery is harmless — you just wait. In distribution, locking in losses by selling low is irreversible and compounding works against you.
What strategies reduce sequence risk?
Common approaches include: a cash or short-bond bucket (1–2 years of expenses) to avoid selling equities in a down year; a bond tent (higher bond allocation in early retirement, then decreasing); dynamic withdrawal rules (cut spending 10% in a down year); and delay claiming Social Security to create a larger guaranteed income floor.
Does this risk disappear after 10 years of retirement?
Sequence risk is highest in the first 5–10 years of retirement, when the portfolio is largest and withdrawals represent the highest percentage of remaining assets. Later in retirement, the portfolio is smaller relative to withdrawals, so market swings have less mathematical impact on final outcomes.
How does a bond allocation reduce sequence risk?
Bonds tend to hold value (or rise) when stocks fall sharply. Rebalancing — selling bonds to buy stocks in a crash — means you spend bonds in bad years and let equities recover. This natural buffer reduces the forced selling of equities at low prices, directly attacking the sequence-risk mechanism.