Retiring Into a Crash: How Much Does Timing Actually Matter?

Two re­tirees can start with €1 mil­lion, with­draw €50,000 each year, and re­ceive the same 30 annual re­turns. One can run out of money while the other finishes with €1.37 mil­lion. The dif­fer­ence comes from the order of the re­turns.

The order changes the out­come

Con­sider this syn­thetic se­quence:

• one year at -40%;
• one year at -20%;
• one year at -10%;
• two years at +5%;
• 25 years at +8%.

Both re­tirees with­draw €50,000 at the end of each year. The se­quence gives them the same long-run geo­met­ric av­er­age return of about 4%. We ignore inflation, taxes, fees, and asset al­lo­ca­tion so the order re­mains the only vari­able.

$$B_t = B_{t-1}(1+r_t) - W$$

The return (r_t) changes each year. The with­drawal (W) stays at €50,000.

If the crash ar­rives first, the bal­ance falls to about €229,000 after five years and €43,700 after ten. The port­fo­lio runs out during year 11. If the strong years arrive first, the bal­ance reaches about €3.19 mil­lion after 25 years and ends near €1.37 mil­lion after the same later losses.

Without with­drawals, both se­quences would finish at the same com­pounded value. With­drawals change that result be­cause assets sold after a de­cline cannot par­tic­i­pate in the re­cov­ery. Van­guard doc­u­mented the same mech­a­nism in his­tor­i­cal US data, where the re­tiree with the worse early se­quence ex­hausted the port­fo­lio sooner.^[1]

Why early losses matter

Start with €1 mil­lion and a €40,000 with­drawal after the loss. A 10% fall leaves €860,000, a 20% fall leaves €760,000, and a 40% fall leaves €560,000. The next €40,000 then equals 4.65%, 5.26%, or 7.14% of the re­main­ing bal­ance.

During ac­cu­mu­la­tion, salary con­tri­bu­tions can offset a poor return. During re­tire­ment, with­drawals can force you to sell into the de­cline. Later losses still matter, but fewer future with­drawals remain.

Buy flex­i­bil­ity before the crash

A cash re­serve can fund planned spend­ing while in­vest­ments re­cover. If you spend €40,000 a year and hold €80,000 in re­tire­ment cash, you can cover two years with­out sell­ing eq­ui­ties. Cash also has a cost, so test the re­serve inside the whole port­fo­lio.

Flex­i­ble spend­ing can reduce forced sales. For ex­am­ple, you might cut €5,000 of travel spend­ing for one year after the port­fo­lio falls 20% below its planned path. Define the rule before re­tire­ment and test whether you would ac­tu­ally follow it.

Working one more year adds a con­tri­bu­tion, avoids a with­drawal, and short­ens the fund­ing hori­zon. A par­tial year or part-time income can also reduce the first port­fo­lio draw.

Sep­a­rate emer­gency cash from re­tire­ment cashUse dif­fer­ent as­sump­tions for un­ex­pected shocks and planned port­fo­lio with­drawals.→

Stress-test the re­tire­ment date

Build sev­eral paths:

1. Base return as­sump­tions.
2. A 20% first-year de­cline.
3. A 40% first-year de­cline.
4. Two weak open­ing years.
5. High inflation with weak re­turns.
6. A one-year re­tire­ment delay.
7. A tem­po­rary spend­ing cut after a draw­down.

Fignis can com­pare those branches on one time­line while you keep spend­ing, pen­sions, and taxes vis­i­ble. The useful ques­tion is, “What would I change after a bad start?”

The market chooses the return in your first re­tire­ment year. You choose the cash re­serve, spend­ing rules, re­tire­ment date, and port­fo­lio al­lo­ca­tion.

Review the port­fo­lio before re­tire­mentCon­nect your asset al­lo­ca­tion with the draw­downs you could face as with­drawals ap­proach.→ Con­nect se­quence risk with your with­drawal rateSee why a start­ing with­drawal per­cent­age cannot re­place a re­tire­ment cash-flow plan.→