About the Sequence of Returns Risk Calculator
Sequence of returns risk is the danger that poor market returns arrive early in retirement, just as you start withdrawing. Two retirees can earn exactly the same returns over 30 years, only in a different order, and one runs out of money while the other dies wealthy. The reason is that withdrawals during a downturn force you to sell investments at low prices, leaving fewer shares to benefit from the recovery.
This calculator makes that concrete. Choose a starting portfolio, an inflation-adjusted yearly withdrawal, and a set of returns: a number of bad years at a loss and the remaining years at a good return. It then runs three scenarios with the identical set of returns — bad years first, bad years last, and a steady return equal to their geometric average — and shows the ending balance and the year the money runs out in each.
Use it to understand why the first five to ten years of retirement matter most, and to test defenses such as a lower withdrawal rate, a cash buffer or a bucket strategy. Without withdrawals, all three scenarios would end with exactly the same balance.
With the default inputs, the cost of bad years coming first is $1,430,825.95. Change any value above to recalculate instantly.
How to use the sequence of returns risk calculator
- 1Enter your starting portfolio and first-year withdrawal.
- 2Set how much withdrawals rise each year and how long retirement lasts.
- 3Choose a good-year return, a bad-year loss and how many bad years to include.
- 4Compare ending balances and depletion years when bad years come first versus last.
- 5Lower the withdrawal until the bad-years-first scenario survives to test a safer plan.
Formula and method
Each year the inflation-adjusted withdrawal is taken at the start of the year and the remaining balance earns that year’s return. If the balance is smaller than the withdrawal, the portfolio is depleted in that year. The three scenarios use the same multiset of returns — the bad years at the start, the bad years at the end — plus a steady scenario earning the geometric average every year.
Because the geometric average compounds to the same total growth, all three scenarios would finish with exactly the same balance if nothing were withdrawn. Every difference in the results is therefore caused by the order of returns interacting with withdrawals — which is what sequence risk means.
- B(y)
- Portfolio balance at the end of year y
- W
- First-year withdrawal
- i
- Yearly withdrawal increase (inflation)
- R(y)
- Return in year y
- N
- Years in retirement
Worked examples
$1M, $45k withdrawal, three −15% years
Three −15% years and twenty-seven +8% years average about 5.44% a year. If the losses come first, withdrawals rising 2.5% a year drain the portfolio in year 18. The very same returns with the losses at the end leave about $1.43 million after 30 years.
Two −20% crashes, 4% withdrawal
Even at a 4% starting withdrawal, two back-to-back 20% losses at the start of retirement exhaust the money in year 23. With the crashes at the end the portfolio finishes above $1.3 million, and a steady 4.95% return ends near $552,000.
$500k, $20k withdrawal over 25 years
Four −10% years followed by +6% years run the portfolio dry in year 21. Reverse the order and about $363,207 is left after 25 years; a steady 3.26% return leaves roughly $149,088.
Frequently asked questions
What is sequence of returns risk?+
It is the risk that the order of investment returns — not just their average — harms your retirement. Losses early in retirement, while you are withdrawing, do far more damage than the same losses years later.
Why does the order of returns matter only with withdrawals?+
Without withdrawals, multiplication is order-independent, so the ending balance is the same. With withdrawals, you sell more shares when prices are low, and those shares are not there to recover.
How can I reduce sequence of returns risk?+
Common defenses are a lower initial withdrawal rate, flexible spending that falls after bad years, a cash or bond buffer (bucket strategy), delaying Social Security to raise guaranteed income, and a rising-equity glide path in early retirement.
When is sequence risk highest?+
In the roughly five years before and ten years after retirement, when the portfolio is at its largest and withdrawals are beginning. That period is sometimes called the retirement red zone.
Does sequence risk affect people still saving?+
Yes, but in reverse: for savers adding money, bad years early are actually helpful because contributions buy more shares at low prices. The risk is concentrated in the years around retirement.
Results are estimates for educational purposes and are not financial advice. Rates, fees and terms vary — confirm with your lender or a licensed advisor before making decisions.