Learn More About Sequence of Return Risk
Read Below To Learn About The Greatest Risk To Your Retirement
This Sequence of Return Risk calculator demonstrates that the order in which market returns occur can vastly impact the outcome of your retirement and proves returns don’t drive success in your retirement. Income planning, including when you take income from which accounts, will determine how long your money will last.
Each scenario is based on the same assumptions: the investor begins with a $1 million portfolio, withdraws $50,000 per year (increasing by 3% per year for inflation), and the average rate of return over the 32-year period is 6%. The only factor that changes in each scenario is the order in which the returns occur. This tool aims to highlight how detrimental it can be for a retiree who takes income from an account that suffers losses early in retirement, as it becomes difficult or even impossible for the portfolio to recover.
Without a plan to combat Sequence of Return Risk, retirees run the risk of being forced to adjust their lifestyles, or even outliving their money entirely. Look at the example below, showing you how the No. 1 risk to your retirement plan is Sequence of Return Risk.
| Market Returns (over 8 years) | |
|---|---|
| Portfolio Balance | $1,000,000.00 |
| Withdrawal Rate | 5.0% |
| Inflation Rate | 3.0% |
| Market Return Year 1 | -22.0% |
| Market Return Year 2 | 3.0% |
| Market Return Year 3 | -5.0% |
| Market Return Year 4 | 4.0% |
| Market Return Year 5 | 11.0% |
| Market Return Year 6 | 18.0% |
| Market Return Year 7 | 22.0% |
| Market Return Year 8 | 17.0% |
| Average Return | 6.0000% |
| Year | Market Return | Withdrawal Amount | Portfolio Balance |
|---|---|---|---|
| 0 | $1,000,000.00 | ||
| 1 | -22.0% | $50,000.00 | $730,000.00 |
| 2 | 3.0% | $51,500.00 | $700,400.00 |
| 3 | -5.0% | $53,045.00 | $612,335.00 |
| 4 | 4.0% | $54,636.35 | $582,192.05 |
| 5 | 11.0% | $56,275.44 | $589,957.74 |
| 6 | 18.0% | $57,963.70 | $638,186.42 |
| 7 | 22.0% | $59,702.61 | $718,884.82 |
| 8 | 17.0% | $61,493.69 | $779,601.55 |
| 9 | -22.0% | $63,338.50 | $544,750.70 |
| 10 | 3.0% | $65,238.66 | $495,854.57 |
| 11 | -5.0% | $67,195.82 | $403,866.02 |
| 12 | 4.0% | $69,211.69 | $350,808.97 |
| 13 | 11.0% | $71,288.04 | $318,109.91 |
| 14 | 18.0% | $73,426.69 | $301,943.01 |
| 15 | 22.0% | $75,629.49 | $292,740.98 |
| 16 | 17.0% | $77,898.37 | $264,608.58 |
| 17 | -22.0% | $80,235.32 | $126,159.37 |
| 18 | 3.0% | $82,642.38 | $47,301.77 |
| 19 | -5.0% | $44,936.68 | $0.00 |
| 20 | 4.0% | $0.00 | $0.00 |
| 21 | 11.0% | $0.00 | $0.00 |
| 22 | 18.0% | $0.00 | $0.00 |
| 23 | 22.0% | $0.00 | $0.00 |
| 24 | 17.0% | $0.00 | $0.00 |
| 25 | -22.0% | $0.00 | $0.00 |
| 26 | 3.0% | $0.00 | $0.00 |
| 27 | -5.0% | $0.00 | $0.00 |
| 28 | 4.0% | $0.00 | $0.00 |
| 29 | 11.0% | $0.00 | $0.00 |
| 30 | 18.0% | $0.00 | $0.00 |
| 31 | 22.0% | $0.00 | $0.00 |
| 32 | 17.0% | $0.00 | $0.00 |