Two retirees can experience the same average annual return over thirty years and reach opposite outcomes. The difference is the order in which those returns arrived, and it only matters once money is being withdrawn.
Withdrawals convert paper losses into permanent ones
During accumulation, order is irrelevant. The same set of returns compounds to the same total regardless of sequence, because nothing leaves the account.
Once withdrawals begin, a decline forces the sale of more units to fund the same spending, and those units are gone when the recovery arrives.
The portfolio therefore participates in the rebound with a smaller base, and the shortfall compounds forward for the remainder of retirement.
Early years carry disproportionate weight
A poor stretch at the start hits the largest balance the retiree will ever have, and the damage is then carried through every subsequent year.
The same stretch late in retirement affects a smaller balance over fewer remaining years, so its effect on sustainability is much reduced.
This asymmetry means the first several years after retiring are the period where the plan is most fragile, regardless of long-run averages.
Fixed withdrawals amplify the effect
A withdrawal strategy that takes a set amount adjusted for inflation ignores what the portfolio has done, so it withdraws a larger proportion after a fall.
Taking a percentage of the current balance instead reduces spending automatically in poor years, which preserves capital at the cost of income stability.
Most practical approaches sit between the two, applying guardrails that adjust spending only when the withdrawal rate drifts beyond set boundaries.
A cash reserve breaks the forced-sale link
Holding a segment of near-term spending in cash or short-duration instruments allows withdrawals to come from that segment during a decline.
The growth assets are then left untouched to recover, which is precisely the behaviour the risk depends on being unavailable.
The cost is the return given up by holding the reserve, which is a permanent drag paid in exchange for protection in specific years.
Flexibility is the most effective defence
A retiree who can defer discretionary spending during a poor stretch reduces withdrawals when withdrawals do the most damage.
Part-time earnings early in retirement work the same way by reducing the amount the portfolio has to supply during the vulnerable period.
Neither requires forecasting markets, which is what makes them more dependable than any attempt to time the sequence itself.