Short answer
A 401(k) balance is only one part of a retirement income plan. This scenario isolates the interaction between a starting balance, withdrawals, inflation, and return order so the timing effect is easy to inspect.
Illustrative scenario
The example is designed for investors approaching withdrawals from a 401(k), but the math also applies to IRA and taxable portfolios. Account tax rules are not modeled. The example below uses a starting balance of $750,000, a first-year withdrawal of $30,000, 2.0% annual inflation, and 25 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| Scenario | Ending balance | Status | Total withdrawn |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 14 | $479,184 |
| Entered order | $86,479 | Survives all 25 modeled years | $960,909 |
| Good returns early | $1,003,903 | Survives all 25 modeled years | $960,909 |
The bad-first and good-first rows use the same return set. Only the order changes. In this example the ending-balance gap is $1,003,903, 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 | -18.0% | -15.0% | +18.0% |
| 2 | -15.0% | +6.0% | +16.0% |
| 3 | -9.0% | +12.0% | +14.0% |
| 4 | -7.0% | -7.0% | +13.0% |
| 5 | -6.0% | +10.0% | +12.0% |
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 this calculator model 401(k) taxes?
No. It models gross portfolio withdrawals and returns only. Income taxes, required minimum distributions, Social Security, employer plans, and account-specific rules require a separate planning model.
Can a 401(k) recover after an early loss?
It may, but withdrawals reduce the balance available to participate in the recovery. The calculator shows this path dependence using the same returns in different orders.
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.