The idea
Two retirees can earn the same average return over thirty years and finish in different places. The one who meets the bad years first sells into a falling market to fund spending; those shares are gone before the recovery. That gap is sequence of returns risk. It is the reason a 7% average is not a plan.
Demonstrate it
The cheapest demonstration is identical withdrawals against identical returns, once in the given order and once reversed — or a crash in year one versus the same crash in the last year. The sequence of returns calculator does the second of those. The crash-the-year-you-retire study does it on 5,000 regime-switching lifetimes: the same 40% crash cut success from 86% to 71% at 65, but only to 81% at 48.
Defenses
- A cash or bond buffer so you are not forced to sell equities at a low.
- A withdrawal rule that can cut — Guyton-Klinger, Vanguard dynamic, or risk-based rails.
- A modest initial withdrawal rate. 4% on a 50-year horizon is not modest.
The glossary entry is the definition. This page is the pillar. The calculator is the demonstration. The blog post is the study.