Retirement withdrawal stress test
Three retirements, identical average returns, identical withdrawals. The only difference is when the bad years arrive — and it is often the difference between finishing comfortable and running out.
Same average return, different order
All three scenarios earn the same 7% on average. Only the order of the good and bad years differs — and that alone decides whether the money lasts.
This is sequence-of-returns risk. A projection built on one flat rate cannot show it, which is why flat-rate retirement calculators are reassuring in a way that is not earned.
The bad years here are a deliberately simple stress pattern — 5 years at -15%, with the remaining years raised so every scenario keeps the same average. Real markets are messier, and real retirees adjust spending rather than withdrawing blindly. Treat this as a demonstration of why order matters, not as a plan.
Why the order of returns matters
While you are saving, order barely matters. You are adding money, and a bad year early means you buy more cheaply — averages do most of the work by the end.
Retirement inverts this. Now you are taking money out. A bad year early means you sell into a fall, and those units are gone: they are not there to recover when the market does. The portfolio has to fund the rest of a retirement from a permanently smaller base.
The same bad years arriving late do far less damage, because by then the portfolio has had years of growth behind it and fewer years left to fund. Same returns, same average, entirely different outcome. This is sequence-of-returns risk, and it is the single most important thing a flat-rate retirement projection cannot show you.
What this means for a withdrawal rate
Any single "safe" withdrawal percentage is a summary of a distribution of outcomes, not a guarantee. The same rate that works comfortably in a good sequence fails in a bad one — which is why the useful question is not "what rate is safe" but "what would I do if the first five years went badly".
Push the withdrawal rate up in the tool above and watch which scenario breaks first. The gap between the scenarios widens far faster than the rate does.
What actually reduces the risk
None of these are novel, and all of them are more useful than optimising a percentage:
- Flexible spending. A retiree who reduces withdrawals after a bad year survives sequences that break a fixed withdrawal. This is the single largest lever, and the one this calculator deliberately does not model — it withdraws blindly, which is the worst case.
- Cash or bonds for near-term spending. Holding a couple of years of expenses outside the volatile part of the portfolio means an early downturn does not force selling at the bottom.
- Working slightly longer, or part-time, early on.Reducing withdrawals in exactly the years when they do most damage is disproportionately effective.
What this tool does not do
It uses one simple stress pattern rather than real market history or a simulation across thousands of paths. It ignores taxes, which differ by account type; it ignores fees; and it withdraws mechanically regardless of what the portfolio is doing, which no sensible retiree would.
It exists to demonstrate one thing clearly — that order matters as much as average — not to tell you whether your own plan works. Retirement drawdown depends on your tax situation, other income, and health, and it is worth taking to someone licensed to look at all of it.
Related: the retirement risk that averages hide
Educational only. This explains how these products and accounts work in general. It is not financial, tax, or legal advice, and not a recommendation to buy anything. Your situation is specific to you — check with a licensed professional before acting.