The first bill and later spending have different horizons
A loss shortly before a binding payment leaves little time to replace the money. Work backwards from its amount, currency and date to income and accessible savings, counting each resource once. Allow for sale, settlement, withdrawal, conversion, costs and applicable tax.
A flexible purchase can move; a compulsory bill may not. Retirement also has several horizons: funding its first year does not settle inflation or spending decades later.
A withdrawal changes what the next return acts on
Spending after an early loss leaves less capital for a possible recovery and later bills. This interaction between returns and cash flows is sequence-of-returns risk.
Follow the spending through both paths
Hypothetical €100,000 portfolio. Each €10,000 payment leaves at year-end, after the return. No contributions, fees, taxes or inflation. This is not a suggested spending rate.
Loss first
Start €100,000
↓ Year 1 return −20%
€80,000 before spending
€10,000 leaves for spending
Into year 2€70,000
↓ Year 2 return +25%
€87,500 before spending
€10,000 leaves for spending
Left after year 2€77,500
Gain first
Start €100,000
↓ Year 1 return +25%
€125,000 before spending
€10,000 leaves for spending
Into year 2€115,000
↓ Year 2 return −20%
€92,000 before spending
€10,000 leaves for spending
Left after year 2€82,000
Every bar uses the same euro scale: full width €125,000. Hatched portions leave the portfolio; the solid remainder receives the next return.
Remove both withdrawals
−20% → +25%€100,000 → €80,000 → €100,000
+25% → −20%€100,000 → €125,000 → €100,000
Both paths spend €20,000. With withdrawals, loss first leaves €4,500 less; without them, both end at €100,000.
Check both sequences, with and without withdrawals
- Loss, withdrawal, gain, withdrawal
- €100,000 × 0.8 = €80,000. Withdraw €10,000: €70,000 remains. A 25% gain adds €17,500: €87,500. Withdraw €10,000: €77,500 remains.
- Gain, withdrawal, loss, withdrawal
- €100,000 × 1.25 = €125,000. Withdraw €10,000: €115,000 remains. A 20% loss leaves €92,000. Withdraw €10,000: €82,000 remains.
With no cash flows, €100,000 × 0.8 × 1.25 = €100,000 in either order. Change the withdrawal dates or amounts and the comparison changes too.
This two-year example gives neither a probability of running out nor a sustainable withdrawal rate. Later returns, inflation, costs, lifespan and spending flexibility still matter.
A reserve changes the funding route
Accessible money for near-term bills can reduce immediate sales after a fall. Check its amount, currency and access; it cannot guarantee recovery before it runs out.
The reserve is part of existing capital. Spending reduces that capital; refilling through investment sales affects what remains invested. Holding more cash also changes growth exposure and inflation risk.
Check the dates on income and expenses
Record the funding source, payment lead times and fallback if an account becomes unavailable. A pension starting later cannot cover an earlier gap: confirm its entitlement, terms and uncertainty. Identify which spending can actually fall and how far; essential bills still need funding.
MoneyHelper’s examples concern UK pensions. Their local access and tax rules do not automatically apply to other countries or accounts.