Sequence Of Returns Risk Calculator NZ 2026/27
The most dangerous number in retirement planning is an average return, because it describes a portfolio nobody actually experiences. Markets do not deliver a steady figure each year, they deliver a sequence, and once you are drawing money out that sequence decides the outcome far more forcefully than the average does. This page demonstrates the point rather than asserting it, using a construction that removes every other explanation. Two portfolios receive exactly the same set of annual returns, containing the same good years and the same bad ones, differing only in the order they arrive. The arithmetic mean is identical, the compound return is identical, and the list of numbers is identical. Run them with no withdrawals and they finish at precisely the same balance, down to the cent, which is worth pausing on because it proves that the returns themselves carry no sequence risk at all. Multiplication does not care about order. Then run the same two sequences while withdrawing a normal retirement income, and one portfolio is exhausted less than halfway through while the other survives comfortably. The mechanism is straightforward once seen: selling units to fund spending while prices are down permanently removes shares that would otherwise have been there for the recovery, and no subsequent good year can replace them. This is also why the transition into retirement matters more than any single year before it.
Withdrawals are taken at the start of each year and the remainder earns that year's return, so money about to be spent is not credited with growth.
Withdrawals rise with inflation each year, which is what makes an early downturn compounding rather than a one-off setback: spending climbs while the balance falls.
The no-withdrawal comparison is the control. Both orders produce an identical final balance, and the difference of exactly zero follows from multiplication being commutative rather than from any modelling choice.
A portfolio reaching zero is held at zero and the year recorded, rather than being allowed to go negative.
Excluded: tax, which applies to both sequences equally; NZ Superannuation, which would reduce the required withdrawal; any behavioural response such as cutting spending during a downturn, which is exactly the defence discussed below; and fees, which should be netted off the return entered.
A single fixed normal return is used outside the downturn years, so ordinary year to year variation is not modelled.
Not financial advice. Last verified: .
The control: no withdrawals
| Order of returns | Arithmetic mean | Compound return | Final balance |
|---|---|---|---|
| Bad years first | 4.64% | 4.18% | $2,226,806.95 |
| Bad years last | 4.64% | 4.18% | $2,226,806.95 |
| Difference | 0.00% | 0.00% | $0.00 |
Exactly zero, and not by approximation. While you are accumulating, the order of returns carries no risk whatsoever.
The same returns, now with withdrawals
| Year | Bad first: opening | Return | Bad first: closing | Bad last: closing |
|---|---|---|---|---|
| 1 | $800,000.00 | -20.00% | $600,000.00 | $810,000.00 |
| 2 | $600,000.00 | -20.00% | $439,200.00 | $819,720.00 |
| 3 | $439,200.00 | -20.00% | $309,744.00 | $829,116.00 |
| 4 | $309,744.00 | 8.00% | $277,218.29 | $838,140.05 |
| 5 | $277,218.29 | 8.00% | $240,944.41 | $846,739.92 |
| 6 | $240,944.41 | 8.00% | $200,599.60 | $854,858.75 |
By the end of year three the bad-start portfolio has fallen to $309,744.00 while the other has climbed to $829,116.00. Both have taken out the same money and both will receive the same returns overall.
How the withdrawal rate changes the exposure
| Withdrawal rate | Year one withdrawal | Bad years first | Bad years last | Survives a bad start? |
|---|---|---|---|---|
| 3.00% | $24,000.00 | $182,632.90 | $1,292,177.00 | Yes |
| 4.00% | $32,000.00 | $0.00 | $980,633.68 | No, out in year 18 |
| 5.00% | $40,000.00 | $0.00 | $669,090.36 | No, out in year 13 |
| 6.00% | $48,000.00 | $0.00 | $357,547.05 | No, out in year 11 |
| 7.00% | $56,000.00 | $0.00 | $46,003.73 | No, out in year 9 |
This is the lever you control. The order of returns is not negotiable, the amount you withdraw is.
When the downturn arrives
| Downturn in years | Final balance | Outcome |
|---|---|---|
| 1 to 3 | $0.00 | Ran out in year 10 |
| 5 to 7 | $0.00 | Ran out in year 14 |
| 10 to 12 | $0.00 | Ran out in year 18 |
| 15 to 17 | $0.00 | Ran out in year 23 |
| 20 to 22 | $107,845.20 | Survived |
| 23 to 25 | $279,661.22 | Survived |
Every year the downturn is delayed buys roughly a year of additional survival. The first decade of retirement carries almost all of the risk.
The Proof Is The Zero
The most important figure on this page is the one that shows no difference at all.
With no withdrawals, both orders finish at $2,226,806.95. Not approximately the same, exactly the same, because multiplying the same set of numbers in a different order gives the same product.
That single fact rules out every alternative explanation. The returns are not riskier in one order than the other. Nothing about the market has changed. The entire difference in the withdrawal case is created by the act of withdrawing.
Worked Example: The Same Returns, Two Retirements
Both: $800,000.00, drawing $50,000.00 in year one rising with inflation, over 25 years with three downturn years of -20.00% and the rest at 8.00%.
Bad years first: the balance falls to $309,744.00 by the end of year three and the portfolio is exhausted in year 10.
Bad years last: the balance climbs to $829,116.00 over the same three years and finishes with $279,661.22.
Identical returns. Identical average of 4.64%. Identical compound return of 4.18%. One retirement works and one does not.
Why Selling Into A Fall Is Permanent
The mechanism is about units rather than percentages, which is why it is easy to miss.
Taking $50,000.00 from a portfolio that has fallen 20% means selling considerably more units than taking $50,000.00 from one at its peak. Those units are gone. When the recovery arrives, it lifts a smaller number of them.
Meanwhile the withdrawal itself keeps rising with inflation, so the pressure increases exactly when the portfolio can least absorb it. By the end of year three the bad-start retiree has taken out $153,020.00 and holds $309,744.00, against $829,116.00 for the other.
The First Decade Carries The Risk
Delaying the downturn is worth almost exactly a year of survival for every year of delay.
Years 1 to 3 exhausts the portfolio in year 10. Years 5 to 7 pushes it to year 14, years 10 to 12 to year 18, and years 15 to 17 to year 23. Move it to years 20 to 22 and the portfolio survives with $107,845.20.
This is why the transition into retirement deserves more attention than the decades of saving that preceded it. Our early retirement bridge calculator covers the case where that transition happens before NZ Super begins, which concentrates the exposure further.
What Actually Helps
You cannot choose the order of returns, so every useful defence is about not being forced to sell at the bottom.
Hold two or three years of spending in cash. A downturn can then be funded without touching the portfolio, which converts a forced sale into a choice. Our retirement bucket strategy calculator sets that structure up.
Do not inflate withdrawals during a bad year. Holding spending flat rather than raising it with inflation for two or three years removes a surprising amount of the pressure, since the inflating withdrawal is half the mechanism.
Lower the starting rate. On this scenario 3.00% survives an immediate downturn while 4.00% does not, and our retirement withdrawal sequencing calculator covers where the money should come from once you have set the rate.
Averages Are The Wrong Tool Here
An average return is a reasonable summary while you are accumulating and close to useless once you are drawing down.
Both retirees on this page could truthfully be told to expect 4.64% a year. Both received it. One ran out of money in year 10.
Any projection given to someone approaching retirement should show a range and should be stress tested against a bad start rather than presented as a smooth line. Our client portfolio projection calculator handles the range, and our investment time horizon risk calculator puts a probability on the bad years arriving at all.
Related NZ Retirement Calculators
- Retirement Bucket Strategy Calculator: the main defence against this risk.
- Retirement Withdrawal Sequencing Calculator: which account to draw from.
- Client Portfolio Projection Calculator: projections as a range.
- Drawdown Calculator: how long a balance lasts.
- Compound Growth With Withdrawals: the underlying arithmetic.
- FIRE Number Calculator: the balance a given income needs.
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