Sequence of returns calculator guide
This calculator demonstrates why the order of returns matters during retirement withdrawals. Two portfolios can have the same average return but very different outcomes if losses happen early.
How to use it
- Enter starting portfolio and annual withdrawal.
- Enter the average return assumption and a bad-year return.
- Compare bad returns first with bad returns last.
Calculation method
Year-end balance = starting balance × (1 + return) − withdrawal
The calculator runs three simple paths: constant average return, bad years first, and bad years last.
Common mistake
Average return alone is not enough for retirement planning. Early losses combined with withdrawals can permanently reduce the portfolio base.
FAQ
Why is sequence risk important?
It is most important when withdrawals begin. Selling assets after early losses can make recovery harder.
Can cash reduce sequence risk?
Cash reserves or flexible spending can reduce the need to sell during down markets, but they also have opportunity costs.
Is this a full Monte Carlo simulation?
No. It is a simple educational stress test designed to show the effect of return order.