Does sequence of returns risk matter while someone is still saving?

Much less, and in a different way. A saver who is adding money benefits from poor returns early, because new contributions buy at lower prices. The exposure grows as the balance grows and contributions shrink relative to it. The years just before and just after retirement are often described as the most exposed, because the balance is large and withdrawals are starting.

Does a higher average return remove sequence of returns risk?

No. Sequence risk is about the order of returns, not their average. In the hypothetical example on this page, both retirees earn the same 6.8% average return and end more than $900,000 apart after 15 years.

Is sequence of returns risk the same as volatility?

They are related but not the same. Volatility is the size of the swings. Sequence risk is what the timing of those swings does to a portfolio that is paying out withdrawals. Without swings there is no sequence risk. Without withdrawals or contributions, swings carry no sequence risk either.

Can sequence of returns risk be predicted?

No. Nobody knows the order in which future returns will arrive. Planning tools can show a range of hypothetical outcomes across many possible orderings. They cannot say which one will occur, and their results are not guarantees.

Explainer

What is sequence of returns risk?

By Ted Kamradt, CFP® · Last reviewed September 21, 2026 · Educational only, not individualized advice

Sequence of returns risk is the risk that poor investment returns arrive early in retirement, while a retiree is taking withdrawals. Two retirees can earn the same average return over the same years and end with very different balances, because money withdrawn during an early loss is not there to take part in the recovery.

The order of returns only matters once money is moving

For a portfolio that nobody adds to or withdraws from, the order of returns does not matter at all. A 15% loss followed by an 18% gain ends in the same place as an 18% gain followed by a 15% loss. Growth multiplies, and multiplication gives the same answer in any order.

Withdrawals break that symmetry. A retiree who withdraws $50,000 after a loss is selling a larger share of a smaller portfolio. Those dollars are gone before the recovery arrives. The same withdrawal taken after a gain is a smaller share of a larger portfolio. The average return over the period can be identical. The ending balance is not.

A hypothetical example with the same returns in two orders

Hypothetical illustration

Two hypothetical retirees each start with $1,000,000 and each withdraw $50,000 at the start of every year for 15 years. The withdrawal is held flat to keep the arithmetic simple. Both receive the same fifteen yearly returns, which average 6.8%. The first retiree receives them worst first. The second receives the exact same returns in reverse order, best first. These returns are invented to show the arithmetic. They are hypothetical, they do not represent any investment, and they are not a projection of future results.

	Worst years first	Best years first
Average yearly return	6.8%	6.8%
Balance after year 5	about $553,000	about $1,616,000
Balance after year 15	about $677,000	about $1,590,000
Balance after year 15 with no withdrawals	about $2,523,000	about $2,523,000

The fifteen hypothetical returns, worst first: −15%, −10%, −5%, 4%, 6%, 8%, 8%, 10%, 10%, 12%, 12%, 14%, 14%, 16%, 18%. Anyone can check the table with a spreadsheet: subtract the withdrawal, apply the year's return, repeat.

Both hypothetical retirees withdrew the same $750,000 in total and earned the same average return. The only difference is the order, and it is worth more than $900,000 by year 15. With no withdrawals, the order makes no difference at all, which is the last row of the table.

What makes the risk larger or smaller

The size of the withdrawal relative to the portfolio. The larger the share withdrawn each year, the more an early loss is locked in. In the example, the withdrawal starts at 5% of the portfolio. After three poor years it is more than 8% of what remains.
Income that does not come from the portfolio. A retiree whose Social Security and pension cover most fixed costs needs less from the portfolio in a poor year, so the order of returns has less to work on.
How flexible the spending is. The example holds the withdrawal fixed no matter what happens. A household that can spend less after a poor year changes the arithmetic. A household that cannot is more exposed. Rigid and flexible withdrawal rules are compared in what the 4% rule says and assumes.
The size of the swings. Smaller swings mean smaller early losses. That is a separate subject, covered in what diversification actually does.

Why a single average return hides the risk

A projection that assumes 6.8% every year would show both hypothetical retirees ending in the same place. It cannot see sequence risk, because it contains no sequence. A Monte Carlo analysis is one way to look at it. It runs a plan through many different hypothetical orderings of returns and reports how the results are spread out, from the poor orderings to the favorable ones.

A Monte Carlo analysis cannot say which ordering will actually happen. Nobody can. Its results are hypothetical in nature, they do not reflect actual investment results, and they are not guarantees of future results.

What the free software shows

Multi-Cycle Planning is a free planning platform. With a free account, a person enters their own numbers and sees a Monte Carlo retirement analysis, tax estimates, and cash-flow projections built from them. Every number is computed by deterministic software: the same inputs produce the same answer every time. The platform's AI explains those computed figures in plain English and is labeled as AI. It is never asked to produce a number itself. The platform is an educational planning tool, and no advisor reviews a self-serve account unless the person chooses to work with one.

FAQ

Straight answers

Does sequence of returns risk matter while someone is still saving? Much less, and in a different way. A saver who is adding money benefits from poor returns early, because new contributions buy at lower prices. The exposure grows as the balance grows and contributions shrink relative to it. The years just before and just after retirement are often described as the most exposed, because the balance is large and withdrawals are starting.
Does a higher average return remove sequence of returns risk? No. Sequence risk is about the order of returns, not their average. In the hypothetical example on this page, both retirees earn the same 6.8% average return and end more than $900,000 apart after 15 years.
Is sequence of returns risk the same as volatility? They are related but not the same. Volatility is the size of the swings. Sequence risk is what the timing of those swings does to a portfolio that is paying out withdrawals. Without swings there is no sequence risk. Without withdrawals or contributions, swings carry no sequence risk either.
Can sequence of returns risk be predicted? No. Nobody knows the order in which future returns will arrive. Planning tools can show a range of hypothetical outcomes across many possible orderings. They cannot say which one will occur, and their results are not guarantees.

This page is educational only. It is not investment advice and makes no recommendations. Examples are hypothetical. More explainers: What is the 4% rule? · What does diversification actually do? · What makes inflation go up or down? · All free tools