Finance & Money
Sequence of Returns Calculator
Start with the entered retirement portfolio, apply each of five annual returns in the order supplied, deduct the same end-of-year withdrawal, and carry the remaining balance into the next year. The year-by-year ledger and return-strip visualization make the timing of losses, recoveries, and cash withdrawals auditable.
End of year 1 balance-
End of year 2 balance-
End of year 3 balance-
End of year 4 balance-
End of year 5 balance-
Five-year withdrawals-
Ending balance minus opening balance-
Decision view
Five-year return sequence and withdrawal path
Five-year return sequence and withdrawal pathEach annual return is shown before the fixed year-end withdrawal, with the remaining balance carried into the next year.
Exact scenario comparisonYear 1 return (%) changes while all other entered assumptions remain constant.
| Year 1 return (%) | End of year 1 balance | End of year 2 balance | End of year 3 balance | End of year 4 balance | End of year 5 balance | Five-year withdrawals | Ending balance minus opening balance |
|---|
How to use Sequence of Returns Calculator
- Enter the investable portfolio available immediately before the first modeled year and the planned end-of-year withdrawal.
- Enter the five annual returns in chronological order; do not sort them from lowest to highest because order is the subject of the calculation.
- Read the return strip together with each end-of-year balance, then rerun the same returns in a different order to observe the timing effect.
Calculator guide
Understanding Sequence of Returns Calculator
Sequence risk is the damage caused when withdrawals meet weak returns early, even when the same set of annual returns might look acceptable as a simple average. This page follows the portfolio one year at a time so the order of returns remains visible.
Calculation method
How the calculation works
Apply each entered annual return in sequence, deduct the same end-of-year withdrawal, and carry the resulting balance into the next year. For each year, multiply the opening balance by one plus that year's entered return, subtract the annual withdrawal, and floor the result at zero before using it as the following year's opening balance.
Path comparison
A practical adverse-first versus favorable-first test
Keep the five entered returns and the withdrawal unchanged, then reverse only the order.
Reordering a short illustration demonstrates mechanics; it does not assign probabilities to either path.
Worked situations
Practical examples
- A negative first year reduces the capital available to participate in later positive returns, while the same dollar withdrawal removes a larger share of the smaller balance.
- Two five-year paths can contain identical returns but finish at different balances when withdrawals occur between those returns.
- If a year-end balance reaches zero, later positive returns cannot rebuild it in this model because no portfolio capital remains.
Better inputs
Useful tips
- Compare an adverse-first path with a favorable-first path using the same five return values and withdrawal.
- Use real account withdrawals, including tax withholding paid from the portfolio, when reviewing an actual historical period.
- Treat five years as an illustration of path dependence, then use a longer stochastic or historical analysis for retirement decisions.
Before relying on the result
Limitations and common mistakes
- The model uses one return for each full year and one withdrawal at year end; monthly spending, dividends, rebalancing, fees, and intrayear volatility are not represented.
- Withdrawals do not increase with inflation, and taxes or account-ordering rules are excluded.
- Five entered observations do not estimate retirement-plan success probability, longevity risk, or future market returns.
Reference
Key terms
- Sequence risk
- The effect that the order of investment returns has when money enters or leaves a portfolio.
- Path dependence
- A result that depends on the route taken, not only on the average of the inputs.
- End-of-year withdrawal
- The fixed cash amount deducted after applying each year's entered return.
- Depletion
- The point at which the modeled portfolio balance reaches zero.
Important note
Calculated from the entered values and stated financial terms. It is not a product quote, lending decision, tax filing, or investment recommendation.
Frequently asked questions
Why can identical average returns produce different ending balances?
Withdrawals change the portfolio between years, so each later return applies to a different capital base.
Is an early loss always worse?
It is usually more damaging when withdrawals continue, but the exact effect depends on the full path and cash-flow timing.
Does the calculator model inflation-adjusted spending?
No. The entered annual withdrawal is held constant for all five years.
Can this result be used as a retirement success rate?
No. It is a deterministic five-year path, not a probability or longevity simulation.