Same average returns, different retirement outcomes?
Two retirees share the same starting wealth and returns. Their withdrawal paths tell different stories.
01 · Retirement and cash flows
The same starting point, two different journeys
An and Bo each retire with 10,000,000 and withdraw 600,000 at each year-end. An receives −20%, −10%, +8%, +15%, +20%; Bo receives the reverse sequence. These are hypothetical teaching paths, not observed market history.
Their return sets are identical, with the same 2.6% arithmetic average and the same five-year compounded growth factor without cash flows. What changes is the wealth available at each withdrawal and the subsequent returns earned on what remains.
02 · Retirement and cash flows
Money withdrawn after a loss misses the recovery
An first falls from 10 million to 8 million, then withdraws 600,000, leaving 7.4 million. The withdrawal consumes 7.5% of available wealth. Bo first grows to 12 million and ends with 11.4 million; the same withdrawal consumes 5%. Equal spending creates unequal portfolio pressure.
After another 10% decline and the second withdrawal, An has 6.06 million. Later strong returns apply to this smaller base. The issue is not that a loss can never recover: money spent on living costs is no longer in the investment account earning compound returns.
03 · Retirement and cash flows
Reconcile investment growth and spending separately
Each year the model multiplies the opening balance by one plus the annual return, then subtracts 600,000. An finishes with 6,883,824.00, Bo with 8,215,776.00, a difference of 1,331,952.00. Both have withdrawn 3,000,000.00. Comparing terminal wealth without checking spending can confuse lower consumption with better investment performance.
With no withdrawals, both finish at 10,730,880.00: multiplication of the same annual growth factors is order-independent. Fixed withdrawals remove amounts that would otherwise participate in different subsequent returns, breaking that symmetry. This is sequence-of-returns risk.
The same return set and 3,000,000 withdrawn by each; the gap comes from the sequence of returns and spending.
Five-year paths with the same return set ( units)
Year five: A 6,883,824; B 8,215,776. Each withdraws 3,000,000; the difference is not lower spending.
| Year | A % | B % | A | B |
|---|---|---|---|---|
| 1 | -20 | 20 | 7,400,000 | 11,400,000 |
| 2 | -10 | 15 | 6,060,000 | 12,510,000 |
| 3 | 8 | 8 | 5,944,800 | 12,910,800 |
| 4 | 15 | -10 | 6,236,520 | 11,019,720 |
| 5 | 20 | -20 | 6,883,824 | 8,215,776 |
Depletion is the first zero balance after a return or withdrawal; U remains explicit and no intrayear date is inferred.
A：10,000,000 × (1 − 20%) − 600,000 = 7,400,000
B：10,000,000 × (1 + 20%) − 600,000 = 11,400,000
Returns precede withdrawals. If available wealth is insufficient, only that balance is withdrawn; unmet spending is reported separately rather than hidden by a zero floor.
04 · Retirement and cash flows
Fixed amounts and fixed percentages shift different risks
Fixed amounts make nominal spending predictable but consume a rising fraction of wealth after losses and can exhaust the account. A fixed percentage scales spending to available wealth. Over a finite path with returns above −100% and a percentage below 100%, it avoids depletion from an oversized fixed withdrawal, but income may shrink severely.
With the same percentage, timing and return set, final balances may match while cumulative withdrawals differ. Risk has shifted to spending variability rather than disappeared. The comparison therefore shows withdrawals alongside remaining wealth and does not automatically reward a strategy for spending less.
05 · Retirement and cash flows
Cash buffers and flexible spending have trade-offs
A cash buffer may reduce sales during a downturn, but it occupies part of retirement wealth and faces inflation and opportunity costs. Replenishing it also requires funding. Flexible spending preserves invested principal by reducing current consumption. Neither is free insurance.
The interaction offers clearly defined fixed amounts and fixed percentages. It does not choose a minimum acceptable spending level or simulate a cash-bucket strategy. The longer example repeats the stated five-year path; it is neither a market forecast nor evidence of a retirement success probability.
06 · Retirement and cash flows
What the case establishes, and what it does not
There is one return observation per year. An unfunded withdrawal takes only available wealth, never borrows, and reports the shortfall and first depletion year/stage. Inflation, taxes, fees, allocation changes, intrayear volatility and mortality are excluded. The result explains a mechanism rather than certifying a personal retirement plan.
Maximum drawdown adds a peak-to-trough view of the path, but it answers a different question from withdrawal affordability. Actual decisions also require spending flexibility, liabilities, other income and a full assessment of risk capacity.
Frequently asked questions
Does a zero account balance hide a spending obligation?
No. Actual withdrawals are capped by available wealth; the unfulfilled portion of the chosen withdrawal rule is shown separately. Percentage withdrawals do not specify a minimum living budget.
Does the reverse path predict when a crash will happen?
No. Both paths use the same hypothetical return set in different orders. They explain timing risk, not event timing or a statistical probability.
Sources and methodology
- Capital Group — Is sequence-of-returns risk really sequence-of-withdrawals risk? · Background on return order and withdrawal timing
Amounts come from this site’s deterministic models and explicitly hypothetical assumptions, not observed market data. References explain general concepts rather than local lending terms or law.
For financial education and model understanding; not personalized investment, retirement or loan advice.
Further comparison
Compare assumptions before drawing a conclusion
Adjust retirement assets, annual withdrawals and return order to see how cash-flow timing affects wealth paths and retirement outcomes under the same set of returns.
Explore further
Understand a concept, or calculate it on its own.
- Maximum drawdown
- Portfolio risk and return