Short answer
A fixed first-year withdrawal equal to 4% of the starting balance is only one assumption. Inflation, fees, taxes, spending changes, and the order of returns can materially change the path that follows.
Illustrative scenario
This page explains why a withdrawal percentage cannot be evaluated independently from the return path. It does not endorse 4% as a universal rule or safe withdrawal rate. The example below uses a starting balance of $1,000,000, a first-year withdrawal of $40,000, 2.0% annual inflation, and 30 annual returns. The figures are illustrative and use no fees or taxes.
| Scenario | Ending balance | Status | Total withdrawn |
|---|---|---|---|
| Bad returns early | $0 | Depletes in year 15 | $657,784 |
| Entered order | $1,653,257 | Survives all 30 modeled years | $1,622,723 |
| Good returns early | $3,416,096 | Survives all 30 modeled years | $1,622,723 |
The bad-first and good-first rows use the same return set. Only the order changes. In this example the ending-balance gap is $3,416,096, which demonstrates why an average return alone does not describe a withdrawal portfolio's path.
First five annual returns in each scenario
| Year | Bad early | Entered order | Good early |
|---|---|---|---|
| 1 | -16.0% | +18.0% | +21.0% |
| 2 | -12.0% | +12.0% | +20.0% |
| 3 | -10.0% | +9.0% | +18.0% |
| 4 | -8.0% | -8.0% | +17.0% |
| 5 | -7.0% | +14.0% | +16.0% |
Withdrawals are applied at the beginning of each year, then increased by inflation for the next year. If a requested withdrawal exceeds the available balance, the scenario is marked as depleted in that year.
Questions about this scenario
Does the 4% rule eliminate sequence risk?
No. A withdrawal rate is an input, not protection from return order. The same initial percentage can produce different outcomes when losses occur early and withdrawals continue.
Does this page prove that a 4% withdrawal rate is safe?
No. It is an illustrative scenario. A safe withdrawal decision depends on spending flexibility, taxes, fees, other income, time horizon, asset mix, and personal circumstances.
Run your own sequence
Use the full sequence-of-returns risk calculator to change the balance, withdrawal, inflation, and annual returns. Guardfolio's other tools cover concentration, volatility, rebalancing bands, and ETF overlap.