When money is only being added or left alone, the order of yearly returns does not change the ending balance. Once fixed withdrawals start, it does: after a loss, more shares must be sold to raise the same cash, and those shares miss any later recovery.
Example
Two retirees each start with $1,000,000 and withdraw $40,000 at the start of each year, raised 3% a year. Both get the same 30 returns: three years of −15% and 27 years of +8% (a compound average of about 5.44%).
| Order | Result |
|---|---|
| Losses in years 1–3 | Money runs out in year 21 |
| Losses in years 28–30 | $1,644,985 left after 30 years |
Historical evidence
In William Bengen's 1994 study behind the 4% rule, a retiree who began in 1929 with $500,000 and a 4% withdrawal saw the portfolio fall below $200,000 by the end of 1932, at which point withdrawals equaled about 7.6% of the balance. A 5% starting rate held up for most start years but ran out in about 20 years for retirees who began in the late 1960s and early 1970s.
How it is managed
Common approaches include a lower starting withdrawal rate, flexibility to cut spending after bad years, and keeping enough stocks for long-run growth (Bengen found allocations below 50% stocks shortened portfolio life). The savings withdrawal calculator shows how long a balance lasts at a given return and withdrawal.