The formula
How to calculate sequence of returns risk
Sequence of returns risk is the reason two retirees with identical average returns can end up in completely different places. Losses early in retirement are far more damaging than the same losses later, because the withdrawals come out of a portfolio that has already shrunk.
The mechanism is straightforward. Selling assets to fund spending during a downturn locks in the loss on the units sold, and those units are no longer there to recover when the market does.
What to enter:
- Portfolio at retirement
- Planned annual withdrawal
- Market fall in year one (%)
Results appear immediately — there is nothing to submit. Changing a field rewrites the link, so you can share the exact scenario you are looking at.
The order the fields are filled in makes no difference to the result — the calculator recomputes the whole formula from whatever is currently in every field, not step by step. That means it is safe to adjust one number, watch the result change, and adjust it back, without worrying about resetting anything first.
Why sequence of returns risk matters
FIRE stands for Financial Independence, Retire Early — reaching a portfolio large enough that investment income covers your living costs, so paid work becomes a choice rather than a necessity. It is not a specific account or product, just the point at which the figures below cross over.
Most people who look up a sequence of returns risk calculation already have a specific number in mind — a quote, an offer, a target — and want to check it rather than learn the theory behind it. This page is built for that: enter your own figures, see the result immediately, and change any field to see how the answer moves without redoing the arithmetic from scratch each time.
Beyond a one-off check, the same calculation is worth revisiting whenever the underlying numbers change — a new interest rate, a change in income, a different term. Because the figures live in the page's own web address, coming back to update just one field and compare the new result against the old one takes seconds rather than starting again from a blank page.
It is also worth being clear about what a single figure like this can and cannot settle on its own. It answers the specific question the formula was built to answer, and nothing more — a favourable sequence of returns risk result does not automatically mean a decision is a good one overall, since plenty of other factors that a formula cannot capture, from personal circumstances to how comfortable a commitment feels, usually matter just as much as the arithmetic. Use the number as one solid input among several rather than the whole of the decision.
A calculator like this one is often bookmarked and returned to repeatedly over months rather than used once, particularly for anything tied to an ongoing plan such as a mortgage, a savings goal or an investment being tracked. Because the figures live in the web address rather than only in memory, coming back to the same page with updated numbers is quicker than starting from a blank spreadsheet each time.
Worked example
Take the figures the calculator starts with:
- Portfolio at retirement: 800,000
- Planned annual withdrawal: 32,000
- Market fall in year one: 30 %
That gives:
- Portfolio after the fall and the withdrawal: 528,000
- Withdrawal rate you are now running: 6.06 %
- Gain needed to get back to the starting balance: 51.52 %
These figures are only the calculator's own starting values, included so the working is visible rather than hidden inside the tool above. Replace them with your own numbers and the same arithmetic applies — nothing about the method changes, only the inputs feeding it.
Reading the result
Watch the withdrawal rate rather than the balance. A plan running a comfortable 4% can find itself at 6% after a single bad first year — and 6% is a rate that historically fails often over a long retirement.
Where this goes wrong. Assuming a recovery fixes it. The market can return to its starting level while your portfolio does not, because you sold units on the way down. The gap never closes on its own.
A useful check on any unfamiliar result is to compare it against a rough mental estimate first — round the inputs to convenient numbers and see whether the calculator's answer lands in roughly the same territory. A wildly different figure usually means one of the fields was entered in the wrong unit, most often a percentage typed as a whole number where a decimal was expected, or the reverse.
Hold two to three years of spending in cash or short bonds so you are not forced to sell equities in a downturn; be willing to cut withdrawals after a bad year; and consider reducing equity exposure in the few years either side of retiring.
Much less, and it can even help. Buying during a downturn means acquiring units cheaply. The danger window is roughly the five years before and ten years after you stop earning.
The answer it gives you is portfolio after the fall and the withdrawal. With 800,000 portfolio at retirement, 32,000 planned annual withdrawal and 30 % market fall in year one, that comes to 528,000. Change any field and the figure moves with it.
Whenever one of the underlying figures changes — a new interest rate, a different balance, an updated term — since the result only reflects what is currently in the fields. There is no need to keep a separate record of past results; the web address for a filled-in version already carries the figures used to produce it.
Not unless a tax rate or a fee is explicitly one of the inputs above. Where it is not, the figure shown is a gross calculation, and any tax due depends on your personal circumstances and current tax rules, which are worth checking separately.
The arithmetic itself is exact — the calculator applies the formula shown above precisely, with no rounding until the final figure is displayed. The uncertainty, where it exists, is entirely in the inputs: an estimated rate or an approximate balance carries that same approximation through to the result.