Retirement · 6 min read

Sequence-of-returns risk: why the order of returns matters once you withdraw

While money is only growing, the order of good and bad years doesn't change where it ends up. Once money is being withdrawn, bad years early on can do lasting damage, even if the average return is the same.

Figures after inflation unless noted. US history in US dollars; Canadian history in CAD. Updated October 2026.

Same returns, opposite outcomes

Take a $1 million retirement portfolio, 60% stocks and 40% bonds, rebalanced each year. Each year the retiree takes out $40,000 (4% of the starting value), raised with inflation so it buys the same amount every year. Run it through the actual US market returns of 1966 to 1995. Then run it through exactly the same 30 years of returns in reverse order.

US stocks (S&P 500 with dividends) and 10-year Treasuries from Aswath Damodaran's data; inflation from Robert Shiller's US CPI. Withdrawals taken at the start of each year.

The two retirees saw the same returns, just in a different order. In the actual order, the weak, high-inflation years of the late 1960s and 1970s came first, while withdrawals were eating into the portfolio. In the reversed order, the strong 1980s and 1990s came first, the portfolio grew well ahead of the withdrawals, and after the first year it never fell below about $1.13 million in today's dollars.

Why order doesn't matter for savers, but does for retirees

For a lump sum that is just left to grow, returns multiply, and multiplication doesn't care about order. A year of +20% followed by a year of −20% leaves the same amount as −20% followed by +20%:

With withdrawals, the bad-year-first order ends $4,000 lower after only two years. The reason is that money taken out after a fall has to come from a smaller pot, so more of the portfolio is sold at low prices and isn't there for the recovery. Over 30 years, that gap compounds.

For someone still adding money each month, the effect runs the other way: bad years early on mean buying more at low prices. Sequence risk mostly belongs to the years just before and after withdrawals begin, when the portfolio is largest and the cash flows reverse.

How often it went wrong in history

Using US data back to 1928, there are 69 complete 30-year retirements to test, one starting in each year from 1928 to 1996. For a 60/40 portfolio, the share that ran out of money before 30 years rose quickly with the withdrawal rate:

Share of the 69 rolling 30-year US retirements (start years 1928–1996) that ran out of money. 60% stocks / 40% bonds, $1M start, withdrawals raised with inflation. Calculated for this site from Damodaran returns and Shiller CPI.

At 4%, all four failures were retirements that began between 1965 and 1969, just before weak markets and high inflation arrived together. Canadian history with a global stock mix is more reassuring over 1977 to 2025, with no 30-year retirement running out even at 5% for any of the mixes tested. But that's only 20 starting years, all in a period that was good for both stocks and bonds, so it's a thin sample.

What has historically softened the risk

No setting removes sequence risk, but a few approaches have historically reduced the damage. They come with trade-offs.

• A lower starting withdrawal rate. The chart above is the clearest lever in the data: at 3% to 3.5%, none of the US 60/40 retirements ran out. The cost is spending less, especially if markets turn out well.
• Some bonds, when the problem is a crash. For a retirement starting in 1929, an all-stock portfolio ran out after 21 withdrawals, while a 60/40 mix lasted all 30 years and still held about $524,000 in today's dollars. For a start in 2000, the 60/40 mix had about $649,000 left by 2025, versus about $66,000 for all stocks.
• But bonds didn't help when the problem was inflation. For a start in 1966, all three mixes tested ran out: all stocks after 27 withdrawals, 60/40 after 25 and 40/60 after 24. At a 4% rate, the bond-heavy 40/60 mix actually failed more often over the full US history than 60/40.
• A cash buffer. A common approach is to keep a year or two of spending in cash or short-term deposits, so withdrawals in a down year don't force selling stocks at low prices. The cost is that cash usually earns less over long periods.
• Flexible spending. Trimming withdrawals after bad years, even temporarily, means selling less at low prices. Fixed, inflation-raised withdrawals, as tested here, are the strictest case; many real retirees adjust.

Government pensions matter too. CPP and OAS are paid for life and raised with inflation, so they cover part of spending no matter what markets do, which lowers how much has to come from the portfolio in a bad stretch.

To test other start years, mixes and withdrawal rates, the interactive guide's retiree time machine runs any US retirement from 1928 on.

Educational, not investment advice. The same information is shown to every reader and doesn't consider anyone's situation. Past returns don't guarantee future results.