Why the first 10 years of retirement matter most: sequence-of-returns risk
Imagine two retirees with the same savings, the same spending, and the same average market return over thirty years. One finishes comfortably; the other runs out of money in her early nineties. The only difference is the order the returns arrived in. That is sequence-of-returns risk, and it's the reason Runway's Historical Backtest replays your plan from every real starting year instead of using one average.
What is sequence-of-returns risk?
While you're saving, the order of returns doesn't change your final balance; ten good years then ten bad years multiplies out the same as the reverse. While you're withdrawing, it does change it, because you take money out between the returns. A withdrawal during a downturn locks in the loss, and the shares you sold can't recover. Researchers have known this since the 1990s. In his 1994 study of historical returns, William Bengen found that a 4% first-year withdrawal followed by inflation-adjusted withdrawals — "In no past case has it caused a portfolio to be exhausted before 33 years" (Journal of Financial Planning). The starting year that produced the shortest portfolio life in his data was 1966.
Same average return, different retirement
To isolate the order, we searched Runway's 154 years of real historical returns for two 30-year windows with the same average return but very different first decades — a 60% stock / 40% bond mix, real returns, dividends reinvested. The best match is a retirement starting in 1990 versus one starting in 1971:
| Start 1990 (good first) | Start 1971 (bad first) | |
|---|---|---|
| Average real return, all 30 years | 6.37% a year | 6.37% a year |
| Average real return, first 10 years | 10.88% a year | −0.97% a year |
| Ending balance at $95,000 of yearly spending | $2,102,773 | $1,624,814 |
| Ending balance at $110,000 of yearly spending | $1,922,208 | $0 — runs out at age 92 |
Same household (the sample couple, $1,460,000 saved, Social Security at 69 and 68), same average return, a difference of more than $477,000 at $95,000 of spending — and the difference between a comfortable finish and a shortfall at $110,000. Only the order changed.
How bad can a bad start get?
Across the 125 real 30-year starting years in the data (1872 through 2025), the sample household at $95,000 of spending survives every one — but the worst of them started in 1966, the same year Bengen identified, with a first decade averaging −1.73% a year in real terms despite a 4.26% average over the full thirty. The first ten years are where the plan is most exposed.
You can also test the timing directly. Take one crash — markets down 20% a year for two years — and start it at different points in the same household's retirement ($95,000 of spending; Pat is 65 today):
| Crash begins at Pat's age | Ending balance at 95 | Money runs short at |
|---|---|---|
| No crash | $1,579,976 | — |
| 65 | $0 | age 93 |
| 70 | $382,339 | — |
| 75 | $571,484 | — |
| 80 | $637,536 | — |
The same crash that leaves $637,536 when it comes at 80 exhausts the money by 93 when it comes at 65. And with a more stretched plan — $120,000 of yearly spending — that identical two-year crash causes the first shortfall at age 79 if it starts at 65, at 89 if it starts at 75, and at 94 if it starts at 85.
What can I do about it?
- Be flexible early. Cutting spending in the first bad years is the strongest lever. Guardrails automate it.
- Test the starting years that hurt. The Historical Backtest page (Pro) shows every real starting year, including starts like 1929 and 1966, so you can see the bad ones, not the average.
- Hold some cash or bonds for the early years so a downturn doesn't force sales of stocks — Runway's cash-reserve setting (Pro) models this.
- Delay Social Security if you can bridge the gap, which lowers the early withdrawals. See when to claim.
For the broader picture of how simulations, crash tests and backtests fit together, read Will my money last?
Replay your plan through 1929 and 1966. Runway's Historical Backtest shows how your plan would have fared from every real starting year.
Try the plannerHow were these numbers computed?
Returns are annual, real (inflation-adjusted), dividend-reinvested total returns for U.S. stocks and 10-year government bonds, 1872–2025, from Robert Shiller's public U.S. Stock Markets 1871–Present dataset. The 60/40 blend is the engine's default allocation. The two windows were chosen by searching all 30-year windows for the pair whose average real return differs by less than 0.04 percentage points and whose first-decade returns differ most. Backtest balances are Runway's walk-forward of the sample household with default assumptions, married filing jointly, plan through age 95, with the long-term-care cost left out; the crash table is a deterministic projection of the same household. Everything is in today's dollars.