💡 Key Takeaway: During the early withdrawal phase, minimize selling equities during market downturns so your remaining shares can benefit from future market rebounds.
Simulation Settings
Enter negative, e.g. -40 for 40% drop
Annual Withdrawal = Principal × Rate
Annual withdrawal increases by inflation
Smooth (No Crash)
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Early Crash (Retirement Start)
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Mid Crash (Mid Retirement)
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Late Crash (Late Retirement)
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What is Sequence of Returns Risk?
"Sequence of Returns Risk" refers to the significant impact that the timing and order of market returns have on the longevity of your retirement portfolio. Even if two retirees experience the exact same average annualized return over a 30-year period, experiencing severe market drawdowns during the initial withdrawal years can cause early portfolio depletion.
1. Market Crash Timing Scenarios
- Early Crash (Most Dangerous): A major market collapse occurs right at the beginning of retirement. Forced withdrawals while asset prices are depressed permanently deplete share counts, preventing the portfolio from recovering via compound growth and causing premature bankruptcy.
- Late Crash (Relatively Safe): Steady or bull market returns during initial years allow portfolio compounding to massively expand the asset base before a late crash occurs.
- Smooth Returns (Benchmark): Ideal scenario with constant annual returns and zero volatility, serving as a baseline comparison.
2. How to Mitigate Initial Drawdown Risk
The first 5 to 10 years of retirement are known as the "fragile period." Maintain a cash buffer (1-2 years of living expenses) and allocate to bonds or defensive assets to avoid selling equities at market bottoms.