How Sequence of Returns can Impact Retirement Portfolio?

By Amit Rupani

Sequence of returns has very different impact to ending portfolio value during savings period than compared to withdrawal period.

Let's check the impact with an example. We have three investors; Mr. Amar, Mr. Akbar, and Mr. Anthony. All three of them are 40 years old. Each invests $1,000,000 in a hypothetical portfolio with no additions or withdrawals until they are 65. All had an average annual return of 8% over 25 years. However, each experienced a different sequence of returns.

Impact During Savings

Mr. Amar had 22%, 14%, 16%, -2%, and -7% as his sequence of returns for first 5 years.

Mr. Akbar had -7%, -2%, 16%, 14%, and 22% as his sequence of returns for first 5 years, reverse of what Mr. Amar experienced.

Mr. Anthony had 8% return ever year for first 5 years (let's assume he invested in a Bank CD giving flat 8% return ever year).

Each five-year sequence is repeated five times and each has an average annual return of 8%. At age 65, all had similar portfolio value of $6,848,475 with different experience in every year.

Below is how the three unique return scenarios would look like at end of 25 year saving period:

Impact During Withdrawal

Our three individuals in the example have reached age 65 and are retired. Each will start to withdraw money from their portfolios every year to cover their retirement expenses. Let's assume annual withdrawal amount to be $200,000 which is adjusted for inflation every year.

All three of them will go through the same sequence of returns that they experienced during saving period. Each earning on an average 8% annual return during the withdrawal period as well.

Below is how the three unique return scenarios would look like at end of 25 year withdrawal period:

Mr. Amar's portfolio value increased from $6,848,475 to $9,469,084 while withdrawing $200,000 every year adjusted for inflation.

Mr. Akbar ran out of money during retirement while he was 89 years old.

Mr. Anthony's portfolio value decreased from $6,848,475 to $3,850,319 while withdrawing $200,000 every year adjusted for inflation. His ending portfolio value remains 40% of Mr. Amar's.

Conclusion: The sequence of returns has no impact on the final portfolio value when you are saving. While the sequence of returns can have a critical impact on portfolio value when you are withdrawing due to the compounding effect on the annual account balances and annual withdrawal amount.

During saving period, don't fret too much about short-term volatility in the stock markets. Just focus on being a disciplined saver without worrying much about short-term returns. One should focus on the long-term results. Some year stock market will give 20% positive return and some year it will give negative 20% return. Annualized S&P500 returns with dividends reinvested have been about 10% for any 30-35 years of investment horizon in last 90 years. The key in stock market is not what or when you buy and sell. It's how you behave when the market is swinging from greed to fear and vice-versa.

Buying right and sitting tight through the volatility is the no brainer concept to tackle stock market volatility!

Happy Investing!


Amit Rupani, CFA is an Independent Investor, practices Value Investing principles, manages money for long-term wealth creation through Equities asset class. Email: