Michael Fox — Licensed Insurance Advisor
Michael Fox Insurance
Phone: 856-676-9358
Email: michaelfox13@gmail.com
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Sequence of Returns Risk
Printed June 18, 2026
Same average return.
Two completely different retirements.
Two retirees start with the same balance, take the same withdrawals, and earn the same average return over 25 years. One runs out of money. The other dies wealthy. The only difference is the order the returns showed up.
The thing nobody tells you about averages
Average returns are calculated after the fact. They tell you nothing about when the gains and losses showed up — and for someone withdrawing money, the timing is everything. A bad market in years 1–5 of retirement does damage that even a 20-year recovery can't undo, because every dollar you spent at the bottom is a dollar that never got to grow back.
Sequence-of-returns simulator
Both portfolios use the same set of annual returns — one in chronological order (bad early), one reversed (good early). Average return is identical at 5.00%.
Fees apply to the market portfolios only — advisory fees, fund expense ratios, and platform charges. Annuity income is contractual and not reduced by these fees. Enter the annuity payout a carrier has actually quoted you (or a hypothetical) to compare apples-to-apples.
Bad returns first
Broke at age 77
Depleted in year 13. Withdrew $845,200; $43,048 paid in fees.
Good returns first
$0
Ending balance — same average, much better outcome. Withdrew $1,961,519; $171,986 paid in fees.
Annuity (sequence-proof)
$60,000 / yr
Guaranteed for life regardless of market order. Total paid over 25 years: $1,500,000 — and the checks keep coming if you live longer.
What this actually means for you
You start retirement at age 65 with $1,000,000, withdraw $60,000 in year one (6.0% of the starting balance), and increase that paycheck by 2.5% every year to keep up with inflation — for 25 years. Both market scenarios earn the exact same returns over the period (about a 5% long-run average) and pay the same 1.00% in advisory and account fees. The only difference is the order the returns arrive.
Bad returns first
Money runs out at age 77.
Early losses force you to sell shares while prices are down to fund your withdrawal. Those shares are gone — they can't recover when the market bounces back. You paid $43,048 in fees along the way. You spend the rest of retirement with no portfolio income.
Good returns first
Ends with $0.
Early gains grow the balance before withdrawals can do real damage. Same fees ($171,986), same withdrawals ($1,961,519), same average return — but the math compounds in your favor. You don't get to pick this scenario. The market does.
Annuity income
$60,000 every year (level) — for life.
A contractual paycheck from the carrier. Pays $1,500,000 over 25 years and keeps coming if you live longer. No advisory fees reduce it, no down market interrupts it, and no sequence of returns can break it.
Apples-to-apples: what would the portfolio have to do?
Your annuity pays $60,000 per year for life. To pull that same paycheck out of the $1,000,000 portfolio, you would have to withdraw 6.00% of the starting balance every year — and then increase it for inflation on top of that. For decades, the research-backed "safe" withdrawal rate has been roughly 4%. Anything materially above that, in a bad-sequence market, is how portfolios run out.
Annuity income rate
6.00%
Contractually guaranteed, for life
Portfolio "safe" rate
~4.00%
And still not guaranteed
You're currently modeling
6.00%
From the portfolio, plus inflation raises
Here's the trap: to match what the annuity pays, the portfolio has to pull 6.00% every year — roughly 50% more than the classic 4% rule. Now stack the three forces working against that portfolio at the same time:
- Higher withdrawal % — every dollar pulled in a down year is a dollar that can never recover when the market rebounds.
- Sequence of returns — if the bad years hit early (the red line above), you're selling more shares at depressed prices, locking in losses you never get back.
- Fees — your 1.00% advisory and account fees come off the balance every single year, in good markets and bad. Over 25 years that's $43,048 in the bad-sequence path alone — money the annuity doesn't lose because the payment is contractual, not a percentage of an account balance.
Combine those three and you get exactly what the red line shows: the portfolio runs dry at age 77, while the annuity check keeps arriving — every month, for the rest of your life.
The bottom line
With your settings, two retirees with the identical portfolio and the identical average return ended up $0 apart— purely because of when the bad years showed up. That's sequence-of-returns risk, and it is the single biggest threat to a retiree relying on market withdrawals. The annuity removes that risk entirely for the income it covers: the check arrives the same amount whether the market is making new highs or in the middle of a 40% drawdown. Pairing a guaranteed-income annuity with a market portfolio means your essential expenses are no longer at the mercy of when you happened to retire.
Account balance over time
Same returns. Same withdrawals. Different order. The annuity income is not a balance — it's the guaranteed annual paycheck that keeps coming whether the market is up, down, or sideways.
Adjust the inputs above, add a name, then print or save the report as a PDF to share.
Why "average return" lies to retirees
Fragility window
The first 5 years
Studies of historical retirement outcomes consistently show that the returns in roughly the first five years of withdrawals dictate whether a portfolio lasts 30 years or runs out early.
No recovery for spent dollars
Withdrawing locks in losses
When the market is down 20% and you withdraw $60,000, you're selling more shares to raise the same cash. Those shares are gone — they can't participate in the rebound.
A different problem
Sequence ≠ market risk
You can have the right asset allocation, the right average return, and still run out of money — purely because of when the down years arrived. It is timing risk, not market risk.
How a guaranteed income annuity removes sequence risk entirely
An income annuity contractually shifts the risk to the insurance carrier. The check arrives the same in a bull market, a bear market, and a sideways market. Because the payment isn't a withdrawal from a balance — it's a contractual obligation — there is no balance to be depleted by bad timing.
The market crashes 30% in year 1
The market portfolio sells at the bottom to fund living expenses. The annuity pays the same dollar amount it would have paid in any other year. Sequence risk has zero effect on the income.
You live to 95
A market portfolio either stretched 30 years or it didn't. A lifetime income annuity continues paying — for as long as you (and optionally a spouse) are alive — period.
Inflation is real
Many income riders include a cost-of-living adjustment that steps the payment up over time, partly offsetting the erosion of purchasing power.
You still have other money
Most thoughtful plans don't annuitize everything. A common design covers essential expenses with guaranteed income, then lets the remaining portfolio grow without the pressure of funding groceries during a downturn.
Important — educational illustration only
The figures shown are hypothetical and produced by a simplified model for education and discussion only. They are not a quote, projection, recommendation, or guarantee of future results. Actual outcomes vary based on your individual circumstances — including age, health, income, tax filing status, state of residence, time horizon, market performance, product design, carrier underwriting, and changes in tax law. Tax-advantaged strategies referenced (e.g., Roth conversions, cash value loans, qualified plan withdrawals) carry rules and consequences that depend on your specific situation; cash value life insurance assumes the contract is properly structured (non-MEC) and remains in force. Nothing on this page constitutes tax, legal, accounting, or individualized investment advice. Please consult your own licensed tax professional, attorney, and financial advisor before acting on any concept presented here.
Sequence-of-Returns Risk Report
Scenario inputs
| Starting balance | $1,000,000 |
| Withdrawal rate | 6.0% ($60,000 / yr in year 1) |
| Years modeled | 25 years |
| Starting age | 65 |
| Annual inflation (raises) | 2.5% |
| Brokerage / advisory fees | 1.00% / yr (applied to market portfolios only) |
| Annuity income (illustrative) | $60,000 / yr (level payment) |
| Average market return | 5.00% (identical for both market scenarios) |
Results over 25 years
| Scenario | Ending balance | Total withdrawn / paid | Fees paid | Outcome |
|---|---|---|---|---|
| Bad returns first | Depleted at age 77 | $845,200 | $43,048 | Ran out of money |
| Good returns first | $0 | $1,961,519 | $171,986 | Same average return — much better outcome |
| Annuity (sequence-proof) | N/A — contractual income | $1,500,000 | $0 | Guaranteed for life — keeps paying past year 25 |
Why this matters
A guaranteed income annuity removes sequence risk entirely
Year-by-year balances
| Year | Age | Bad-first balance | Good-first balance | Annuity income (this yr) |
|---|---|---|---|---|
| 1 | 65 | $752,297 | $1,031,477 | $60,000 |
| 2 | 66 | $593,889 | $1,045,166 | $60,000 |
| 3 | 67 | $477,403 | $1,029,090 | $60,000 |
| 4 | 68 | $461,134 | $1,020,142 | $60,000 |
| 5 | 69 | $433,336 | $980,638 | $60,000 |
| 6 | 70 | $393,780 | $974,470 | $60,000 |
| 7 | 71 | $342,910 | $939,198 | $60,000 |
| 8 | 72 | $289,953 | $943,744 | $60,000 |
| 9 | 73 | $235,804 | $920,889 | $60,000 |
| 10 | 74 | $168,565 | $886,408 | $60,000 |
| 11 | 75 | $95,239 | $872,360 | $60,000 |
| 12 | 76 | $17,467 | $847,297 | $60,000 |
| 13 | 77 | $0 | $788,081 | $60,000 |
| 14 | 78 | $0 | $746,082 | $60,000 |
| 15 | 79 | $0 | $686,377 | $60,000 |
| 16 | 80 | $0 | $628,144 | $60,000 |
| 17 | 81 | $0 | $586,197 | $60,000 |
| 18 | 82 | $0 | $528,363 | $60,000 |
| 19 | 83 | $0 | $459,878 | $60,000 |
| 20 | 84 | $0 | $392,171 | $60,000 |
| 21 | 85 | $0 | $322,451 | $60,000 |
| 22 | 86 | $0 | $247,638 | $60,000 |
| 23 | 87 | $0 | $129,811 | $60,000 |
| 24 | 88 | $0 | $20,576 | $60,000 |
| 25 | 89 | $0 | $0 | $60,000 |
This report is provided for educational and illustrative purposes only and does not constitute financial, tax, legal, or investment advice. The figures shown are hypothetical and do not represent the past or future performance of any specific security, portfolio, or insurance product. Investment returns, withdrawal sustainability, and product features vary based on the carrier, product, age, health, funding, market conditions, fees, and the prevailing interest-rate environment at the time of purchase.
The "bad-first" and "good-first" sequences use the same set of annual returns in opposite order, normalized to a 5.00% arithmetic average. Real-world markets do not repeat any historical sequence. The brokerage / advisory fee is applied uniformly to ending balances and is not a quote from any specific advisor or platform. Annuity income figures are illustrative only; an actual, bindable income quote requires full underwriting and a formal carrier illustration. Annuity guarantees are subject to the claims-paying ability of the issuing insurance carrier. Surrender charges, market-value adjustments, and other contract terms may apply.
Individual situations differ. Before acting on any concept presented in this report, please consult a licensed insurance professional, a qualified tax advisor, and — where appropriate — a fiduciary investment advisor or attorney. Nothing in this report should be construed as a recommendation to buy, sell, hold, or surrender any specific product, security, or strategy.