Sequence of Returns Calculator
See how the order of good and bad years affects a retirement portfolio: compare a poor-early sequence with a poor-late one at the same average return.
How it works
Each year: balance = (balance − withdrawal) × (1 + that year’s return) · Same set of returns, reversed order
Two portfolios can earn the identical average return yet end up worlds apart if you are withdrawing money along the way. When bad years strike early in retirement, you sell more shares at depressed prices to fund withdrawals, permanently shrinking the base that later good years can grow. This “sequence-of-returns risk” is why the first few years of retirement are the most dangerous, and why holding a cash buffer to avoid selling into a downturn is so valuable.
Worked example
Starting at $1,000,000 with $50,000 annual withdrawals over 10 years at a 6% average, putting the two −15% crash years first leaves markedly less than putting them last — even though the arithmetic average return and total withdrawals are identical in both runs.
Frequently asked questions
Why does order matter if the average is the same?
Because you withdraw a fixed dollar amount each year. A loss early forces you to sell more of a shrunken portfolio, so there is less left to recover when good years arrive. Without withdrawals, order would not affect the final balance.
How do retirees reduce sequence risk?
Common tactics include holding one to three years of spending in cash so you can avoid selling stocks in a downturn, using flexible (lower) withdrawals after bad years, and keeping a more conservative mix in the first years of retirement.
Is this a full simulation?
No — it is a simplified two-scenario illustration to show the effect of ordering. Real planning uses many historical or Monte Carlo return paths rather than a single reversed sequence.
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Educational estimate, not financial advice.