Retirement / Evergreen
The same returns, in a different order, can change retirement outcomes.
A two-year illustration makes sequence-of-returns risk visible.
Withdrawals make the timing of investment returns matter, even when the set of returns is identical.
Start without withdrawals
Take a fictional balance of 100,000. A 20% loss followed by a 25% gain returns it to 100,000: 100,000 × 0.8 × 1.25. Reverse the order and the ending balance is also 100,000. This example excludes fees, taxes, and contributions. Multiplication alone makes the order irrelevant in this simplified case.
Add spending at year-end
Now withdraw 10,000 at the end of each year. After the first-year loss, 80,000 becomes 70,000 following the withdrawal. A 25% gain takes it to 87,500, and the second withdrawal leaves 77,500. In the reverse order, 125,000 becomes 115,000 after year one. A 20% loss produces 92,000, and the next withdrawal leaves 82,000. The difference is 4,500 despite identical annual returns in a different sequence.
Why the gap appears
Money withdrawn after an early decline no longer participates in a later recovery. The arithmetic illustrates a risk, not a prediction of future markets or a universally suitable withdrawal rate. Two years also cannot represent the range of outcomes over a long retirement. Inflation-adjusted withdrawals, taxes, irregular spending, and longer periods add further complexity.
What a useful scenario includes
A retirement illustration should identify starting assets, withdrawal timing, income from other sources, fees, inflation assumptions, and the sequence of returns. Comparing more than a smooth average exposes the trade-offs. The SEC's lifetime-income material also highlights the risk of outliving assets. A useful exercise is to repeat the numbers with a smaller withdrawal and explain why the outcome changes; it does not establish what any individual should withdraw.
A global perspective
Pension access, guaranteed-income products, taxes, and social benefits vary by jurisdiction. The numerical example is independent of any particular retirement account or product.
Sources & further reading
Investor.gov — Managing lifetime income ↗Sources checked Oct 15, 2026. Examples are original illustrations. No affiliation with cited organizations.
Make the idea stick.
Mark complete when you are ready. Reaching the end alone does not mark a lesson complete.
What assumption in this guide would change the result in a different situation? Revisit the example and explain that change in your own words.
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