Sequence of returns risk calculator

The same withdrawals and the same average return, in two orders: a crash first, and that crash last. The gap between the endings is the risk.

The calculator

Crash first$415,472Crash in year 1, then the other-year return
Crash last$843,018Same crash in the final year
Gap$427,546Crash-last ends ahead

Identical 5.0% years and one -30.0% year, in opposite orders, differ by $427,546 at the end.

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Why the order matters

Two people can earn the same average return and finish in different places, because a withdrawal takes a larger share of a smaller portfolio. Selling after a fall locks the loss in; the same fall at the end hits a pile that has already compounded. The glossary entry on sequence of returns risk and the crash-at-retirement study go further.

Assumptions

One crash year and a flat return everywhere else — enough to isolate order, not a forecast. No fees, no taxes, withdrawals at the start of each year. A full plan needs a distribution of paths, not two.

Frequently asked questions

What is sequence of returns risk?
The risk that the order of returns damages a plan even when the average is unchanged. It is most dangerous when money is being withdrawn, because selling after a fall locks the loss in.
Why does reversing the returns change the ending balance?
Withdrawals take a larger share of a smaller portfolio. A crash early forces those sales at the bottom; the same crash at the end hits a portfolio that has already compounded.
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