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hoped for, the sequence of returns had no impact on their end result.


Unfortunate Timing Can Take a Toll The concern is magnified for those taking withdrawals from an equity portfolio. Weak market returns occur- ring at the wrong time could more quickly deplete their nest egg. When withdrawals are made at the same time investments are losing value, the decline in portfolio value can be dra- matic, which could jeopardize long- term financial security.


Let’s consider what happens to Bill and Betty, two investors who retire during two completely different market cycles and experience returns exactly the op- posite of each other.


For Bill, returns were strong early on, but in later years, performance de- clined. For Betty, returns were poor in the early years, but improved over time. In this case, each withdrew $5,000 per year in income from their $100,000 portfolio. Here is how their portfolios performed combining the different sequence of returns with steady withdrawals:


Bill’s Portfolio Value At Betty’s Portfolio Value At Year Returned:


Year End: Returned Year End


1 +20% $114,000 -20% $ 76,000 2 + 6% $115,540 - 6% $ 66,740 3 0% $110,540 0% $ 61,740 4 - 6% $ 99,208 + 6% $ 60,144 5 -20% $ 75,366 +20% $ 66,173


As the numbers show, even though Bill was taking money out of the account each year, the value of his savings grew in the first two years. As returns deterio- rated, the value of the account declined more significantly.


Still, he ended the five years with con- siderably more money in the account


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