What is sequence of returns risk?

Sequence of returns risk is the danger that poor market returns early in retirement can do more damage than equally poor returns later, even when the long-term average return is unchanged.

Why does sequence risk matter for FIRE?

Because withdrawals are already leaving the portfolio, early losses can reduce the base that future gains would otherwise compound on. That can make two identical average-return plans finish very differently.

What should I compare this with?

You can compare it with a Monte Carlo FIRE simulator for randomness across many paths, or with a 4 percent rule calculator to turn spending into a rough FIRE target.

Sequence of Returns Risk Calculator

This tool shows why return order matters in retirement. Both paths below use the same long-run average return. The only change is whether bad years happen early or late while withdrawals are already coming out.

Early-bad ending value –

Late-bad ending value –

Gap created by order –

Depletion result –

Early bad years first

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Late bad years last

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Why Sequence Risk Matters

A retiree taking withdrawals is more exposed to early losses than a saver still adding money. When markets fall in the first years of retirement, withdrawals are coming out of a portfolio that is already down, leaving fewer dollars invested for the recovery. That creates a double hit: the balance falls because returns are weak, and then it falls again because spending still has to come out on schedule.

This is why two plans can have the same average return over time and still end very differently. If strong years come first, the portfolio gets time to compound before the rough patch arrives. If weak years come first, the account may never fully rebuild because the withdrawals keep reducing the base that future gains can grow from.

That is why sequence risk matters so much in FIRE. The question is not only “what average return do I get?” but also “when do the bad years show up?” A plan can look fine on a spreadsheet average and still feel fragile in the real world if the first stretch of retirement is rough.

Year-By-Year Comparison

Year	Return if losses come early	Ending balance	Return if losses come late	Ending balance

Sequence Risk FAQ

Why can the same average return lead to different retirement outcomes?

Because order matters once withdrawals begin. Early losses combined with spending can shrink the portfolio so much that later gains have less capital left to work on.

Does this page use random simulations?

No. This tool is intentionally simpler than the Monte Carlo FIRE Simulator. It compares two clean paths with the same average return so you can isolate the effect of return order by itself.

What should I use after this?

If you want a broader stress test, open the Monte Carlo FIRE Simulator. If you want to translate spending into a target number first, the 4% Rule Calculator is the best follow-up.