The order of investment returns can affect how much remains when money is withdrawn during retirement. A small two-year example makes the arithmetic visible. It does not predict returns or tell a household how much to withdraw.
Keep the assumptions visible
Both invented accounts start with 100 units. Each experiences one year with a 10% gain and one with a 10% loss. The only change is their order. First compare the accounts with no withdrawals, fees, taxes or other cash flows.
| Order | End of year one | End of year two |
|---|---|---|
| Loss, then gain | 100 × 0.90 = 90 | 90 × 1.10 = 99 |
| Gain, then loss | 100 × 1.10 = 110 | 110 × 0.90 = 99 |
Both finish at 99. A 10% loss and a 10% gain do not cancel because the second percentage applies to a different balance.
Now add equal end-of-year withdrawals
Take 10 units after each year's return in both accounts. Keep every other assumption unchanged.
| Order | Year one after withdrawal | Year two after withdrawal |
|---|---|---|
| Loss, then gain | 100 × 0.90 − 10 = 80 | 80 × 1.10 − 10 = 78 |
| Gain, then loss | 100 × 1.10 − 10 = 100 | 100 × 0.90 − 10 = 80 |
Each account paid out 20 units. The ending balances differ by 2 units because the withdrawals changed the balances exposed to later returns. GAO's retirement-income discussion explains this general sequence-of-returns issue. That report is from 2011; it is used for the enduring concept, not current market assumptions or product terms.
What the example leaves open
Real household cash flows may occur monthly, vary over time and include taxes or fees. Market returns do not alternate predictably between these two values. Adding those details changes the result. This example establishes neither a safe withdrawal rate nor a suitable investment allocation.
When reviewing a projection, ask which withdrawal dates it assumes, how expenses change, whether costs are included and what happens under a different return order. Keep an illustrative projection separate from a contractual payment promise. A chart with one smooth average return cannot answer every question about an account used for ongoing spending.
Begin with the amounts and timing your household needs from the retirement bill calendar. Then ask an appropriately qualified professional to explain the assumptions and limitations of any proposed income approach. This page contains no fund selection, purchase recommendation or individual withdrawal instruction.
Change one assumption at a time
The interactive withdrawal-order worksheet lets you change the starting amount, the two returns, the requested withdrawal and its timing. First reproduce the worked example above. Then change one input so the reason for the new result remains visible.
For another invented example, start at 100, withdraw 10 at each year-end and compare a 50% loss followed by a 100% gain with the reverse order. Loss first leaves 40 after the first withdrawal and 70 after the second. Gain first leaves 190 and then 85. Without withdrawals, both orders end at 100. Equal return sets still do not guarantee equal outcomes when money leaves between them.
What happens if the requested withdrawal exceeds the balance?
The worksheet pays only the amount available and shows the remainder as unmet. It does not create a negative investment account or assume borrowing. A zero ending balance alone would hide how much of the requested spending could not be paid, so review both figures.
Why does beginning-versus-end timing matter?
A beginning withdrawal removes money before that year's return applies. An end withdrawal occurs after the return. Keep the timing consistent when comparing two examples; otherwise more than return order has changed.
Does the better result identify a safe withdrawal rate?
No. Two invented years do not represent a complete retirement horizon, possible market outcomes, fees, taxes or inflation. The tool explains arithmetic. It does not select an allocation, a product, an annual spending rule or an acceptable level of risk for a person.
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Sources
- GAO: Retirement income and withdrawal risk, checked November 4, 2026
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