Two retirees. One bad decade. Same returns, same income, same starting balance — and outcomes that aren't even close. A study of sequence-of-returns risk.
Retires at 66 with $1,000,000, all of it in a market-exposed portfolio. Withdraws $50,000 the first year, raising it 2.5% every year for inflation. She does this every year, no exceptions, no matter what the market did.
Same $1,000,000. Same income need. But Bea splits her wealth: $800K (80%) in the same market-exposed portfolio, and $200K (20%) in a Reserve — a separate account that tracks the S&P 500 with a 0% floor and an 8% cap (net of all fees). It can't lose money. In any year following a market loss, she skips her portfolio withdrawal and pulls from the Reserve instead.
Reserve distributions are tax-free, so Bea pulls a smaller dollar amount to net the same spendable income. Both retirees take home identical after-tax cash each year — they only differ in how they allocate the same starting wealth, and in which account funds the income.
Both retirees start with exactly $1,000,000 in total wealth and face the same brutal fifteen years of returns — a roughly 35% drawdown over the first three years, followed by a recovery and another 37% loss in year nine. Same starting wealth. Same returns. Same income. The only differences: Bea splits her $1M into 80% portfolio + 20% Reserve; Anna goes 100% portfolio. And in any year following a market loss, Bea pulls from the Reserve instead of selling assets at depressed prices.
| Account | Withdrew | Balance | Drawn-Down |
|---|---|---|---|
| Anna · Portfolio | — | $1,000,000 | — |
| Bea · Portfolio | — | $800,000 | — |
| Bea · Reserve | — | $200,000 | — |
$1,000,000 Identical starting wealth. Identical returns. Identical incomes. Wildly different futures.
| Retiree | Strategy | Portfolio at 80 | Reserve at 80 | Total |
|---|---|---|---|---|
| Bea | 80% portfolio + 20% Reserve · skip portfolio withdrawal after down years | — | — | — |
| Anna | 100% portfolio · withdraw every year, no matter what | — | — | — |