THE MITEY FIELD NOTES

The same returns can fund a different retirement

Explore why the order of returns matters once money is being withdrawn, using an explicit two-path stress test.

By MITEY editorial team · Reviewed October 25, 2026

The short answer

Without cash flows, reversing a set of compounded returns leaves the same ending investment value. With withdrawals, the order can change the balance available to fund later spending. A two-path comparison demonstrates this mechanism; it does not estimate the probability of retirement success.

01 / A CLOSER LOOK

Hold the return set constant.

The sequence stress test takes between two and forty annual percentages. Scenario A follows your entered order. Scenario B reverses that same list. The compounded annual return displayed before withdrawals is identical for both, because the factors being multiplied are the same.

Use a small example you can verify. Start with $100,000 and returns of −20% and +25%, with no withdrawals. The first order goes to $80,000 and then $100,000. The reverse order goes to $125,000 and then $100,000. Both end at the same value. This says nothing about the likelihood or future repetition of either return.

02 / A CLOSER LOOK

Add spending and examine the change.

With a $10,000 withdrawal at each year end, that example changes. The first order becomes $70,000 after year one and $77,500 after year two. The reverse order becomes $115,000 after year one and $82,000 after year two. The $4,500 ending-balance difference arises from the interaction of withdrawals and return order.

Canada Life’s sequencing research discusses the effect of return order during retirement withdrawals. This calculator isolates that mechanism with your chosen values. It does not import the paper’s market series, use a historical index, simulate asset allocation or apply a planner’s withdrawal recommendation.

03 / A CLOSER LOOK

Keep unfunded spending visible.

Requested withdrawals rise by the annual increase you enter. The model applies each annual return first and takes the withdrawal at year end. If available funds are insufficient, it withdraws what is available and records the unpaid portion as a shortfall. Balances do not become negative to suggest that spending was somehow funded.

Check both the ending balance and total shortfall. Once a portfolio is depleted, later positive percentage returns cannot rebuild a zero balance without a new contribution. The two scenarios can therefore have different actual withdrawals as well as different ending wealth. Neither a positive ending balance nor a zero shortfall establishes personal retirement adequacy.

04 / A CLOSER LOOK

Use a stress test as one part of planning.

Try lower spending, a different starting balance or a different return path while keeping the other assumptions fixed. Hold a scenario before changing it, then compare the supporting results and the exact changed inputs. The ledger uses annual model periods; it is not a monthly transaction record.

Taxes, fees, pensions, government benefits, account rules and market probabilities are outside this tool. Your annual list is a set of assumptions, not a forecast. A detailed personal plan needs those omitted cash flows, a longer appropriate horizon and the relevant professional context. Take the method and assumptions into that discussion instead of treating one illustrative path as an answer.

Sources and scope

Canada Life: managing sequencing risk, October 2020 (PDF) ↗

The source provides context for the subject. The worked models are MITEY implementations described on their own pages. This guide does not assess personal eligibility or recommend a product. Report a correction.