Sequence-of-returns risk

Two retirees can save the identical amount, invest in the identical funds, and earn the identical average return over 25 years — and still end up in completely different places. The reason is the order the returns arrive in, not just their average.

While you're still working and adding money every month, a market crash is actually helpful: you keep buying at lower prices, and the recovery lifts a growing pile of units. Once you retire and start withdrawing instead, the same crash works in reverse. You're forced to sell units at depressed prices to fund your spending, which permanently shrinks the base that has to recover — even if the market fully bounces back later, your portfolio doesn't, because it had fewer units left to ride the recovery.

This is why a single "average return" projection can be dangerously misleading for a retirement plan: it hides the very risk that most often derails one. A Monte Carlo simulation — replaying thousands of different possible orderings of yearly returns — is the standard way to see this risk instead of averaging it away.

There's no way to eliminate sequence-of-returns risk entirely, but you can reduce your exposure to it: holding 1-2 years of expenses in something stable (so you're not forced to sell equity in a down year), or trimming discretionary spending in years the market falls, both measurably improve a plan's odds — which is exactly what the guardrails toggle in the Retirement Planner models.