Sequence of returns risk: the same average return, two very different retirements

Afterwork Plan · September 28, 2026 · 6 minute read

Take $1 million, invest 60% in stocks and 40% in bonds, and spend $45,000 a year, raised with inflation. Run the real market years from 1966 through 1995 and the money runs out in year 21. Run the same 30 years in reverse order and you finish with $1.44 million, after inflation.

Both retirees earned the same average return: 4.83% a year after inflation. The only difference is which years came first. That's sequence of returns risk.

1966 to 1995, in the order it happenedThe same 30 years, reversed
$0$0.5M$1M$1.5M$2M$2.5MYear 0Year 5Year 10Year 15Year 20Year 25Year 30 Runs out, year 21 $1.44M
$1 million, 60% stocks and 40% bonds rebalanced every year, $45,000 taken out at the start of each year and raised with inflation. Balances adjusted for inflation. No taxes or fees.

What sequence of returns risk means

While you're still adding money every month, a bad year early on does little harm. You buy at lower prices, and the market has years to come back before you need the money.

Once you're taking money out, it works the other way. Every withdrawal in a down year sells investments at low prices, and the shares you sold can't recover when the market does. A crash in your first few years of retirement shrinks the savings that have to last the next 30. The same crash 15 years in does less damage, because by then you've already taken years of paychecks and the rest has had time to grow.

What it did to every retirement since 1928

We ran every 30-year retirement that fits in the data, one starting in each year from 1928 to 1996: 69 retirements in all. For each one we found the highest starting withdrawal, raised with inflation every year, that lasted the full 30 years with the same 60/40 mix.

0%2%4%6%8%10%12%1928: 5.6%1929: 4.6%1930: 5.0%1931: 5.6%1932: 7.3%1933: 7.1%1934: 5.8%1935: 6.0%1936: 5.0%1937: 4.4%1938: 5.9%1939: 5.0%1940: 5.2%1941: 5.7%1942: 7.1%1943: 7.3%1944: 6.9%1945: 6.6%1946: 5.8%1947: 7.4%1948: 8.2%1949: 8.6%1950: 8.0%1951: 7.6%1952: 7.4%1953: 7.0%1954: 7.3%1955: 5.7%1956: 5.0%1957: 5.1%1958: 5.7%1959: 4.8%1960: 4.7%1961: 4.7%1962: 4.2%1963: 4.5%1964: 4.1%1965: 3.9%1966: 3.7%1967: 4.2%1968: 3.9%1969: 3.9%1970: 4.6%1971: 4.6%1972: 4.4%1973: 4.2%1974: 5.1%1975: 7.0%1976: 6.5%1977: 6.0%1978: 7.0%1979: 7.8%1980: 8.5%1981: 8.8%1982: 10.3%1983: 9.3%1984: 9.2%1985: 9.6%1986: 8.4%1987: 7.6%1988: 8.3%1989: 8.3%1990: 7.4%1991: 8.3%1992: 7.4%1993: 7.5%1994: 7.3%1995: 8.2%1996: 6.9%1930194019501960197019801990Start
The highest starting withdrawal that lasted 30 years, as a share of the starting balance, by the year retirement began. The orange bars are the six worst start years.

The spread is enormous. Someone who retired in 1982 could have started at 10.27% of their savings. Someone who retired in 1966 could start at only 3.73%. The middle retiree of the 69 could start at 6.49%, and 19 of the 69 couldn't sustain 5%.

The worst years to stop working were 1964 through 1969, and stopping right before the 1929 crash supported 4.60%, more than any of them. Those late-1960s retirees ran straight into the 1970s. Inflation topped 5% in 8 of the 9 years from 1973 to 1981, raising every withdrawal, and the S&P 500 with dividends lost 14% after inflation from 1966 through 1981.

The first ten years decide most of it

Sort the 69 retirements by how well they did. The ten worst averaged a loss of 0.9% a year after inflation over their first decade. The ten best averaged a gain of 10.1% a year. The retirees who ran into trouble had their bad luck in the first ten years.

What changes the outcome

Spending that can bend. A plan that spends a little less in bad years sells fewer investments at low prices. In our example of a single 60-year-old with $1 million, trimming spending 10% whenever savings fell 20% below where they started raised the most they could spend by $440 a month, in every stretch of history. The full example is here.

Income that doesn't depend on markets. Social Security or a pension covers part of every month, so less has to come out of investments during a down year.

Your own numbers. The 60/40 portfolio above is a stand-in. Your mix of investments, your taxes, when your Social Security starts and what you pay for health insurance before Medicare all change which years would have hurt you, and by how much.

Test your plan against the bad years

Afterwork Plan runs your own numbers through every stretch of market history since 1928, including stopping right before 1929, 1966, 1973, 2000 and 2008, and shows the earliest month your plan holds in all of them. The answer is free.

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How we calculated this. Yearly returns for the S&P 500 with dividends, 10-year US Treasury bonds and US inflation (CPI), 1928 to 2025, compiled by Aswath Damodaran at NYU Stern. The portfolio is 60% stocks and 40% bonds, rebalanced every year. Withdrawals come out at the start of each year and rise with inflation. No taxes or fees. This is history, and future markets can be worse. Educational only, not investment advice.