Sequence of returns risk is the risk that the bad years come early in retirement, while you are withdrawing, so that you sell units at low prices and the money left has less to recover with. Two retirees with the same average return can end with very different sums, depending only on the order of returns. Kunal's sums put a number on sequence risk: one 25% fall in year one rather than year ten leaves him about ₹1 crore poorer at 70, or ₹42 lakh at today's prices.

Why does the order of returns matter only once you withdraw?

Without withdrawals, order makes no difference: the same fifteen yearly returns multiply a lump sum to the same figure in any order. Withdrawals change that. After an early fall, each retirement withdrawal is paid by selling units at low prices, and those units are gone before the recovery comes. The same fall ten years later hits a pot that has already grown, which is why the retirement planning guide singles out falls in the first years of retirement. A fall before retiring hurts the same way: withdrawals start from a smaller pot.

Kunal's ₹2 crore: a 25% fall in year one or year ten

Kunal is 55 and has retired from a ₹48 lakh job with ₹2 crore. He draws ₹8 lakh a year, 4% of a pot worth 25 times his spending, at the start of each year, and raises it with prices. The sums treat the whole ₹2 crore as equity funds, with 6% inflation and a 12% return in a normal year (October 2026 assumptions, not forecasts); a mix with debt would swing less.

Both paths use the same 15 yearly returns, minus 25% once and plus 12% fourteen times, so both average 9.05% a year compounded. In year one, ₹2,00,00,000 less ₹8,00,000 leaves ₹1,92,00,000. In path A the fall cuts it to ₹1,44,00,000; in path B it grows 12% to ₹2,15,04,000.

Kunal's age Path A: fall in year one Path B: fall in year ten
56, after year one ₹1.44 crore ₹2.15 crore
64, after year nine ₹2.17 crore ₹3.93 crore
65, after year ten ₹2.28 crore ₹2.84 crore
70, after 15 years ₹2.88 crore ₹3.88 crore

In path A, year two's ₹8,48,000 is 5.9% of a ₹1.44 crore pot, not 4%, and every later withdrawal comes from a smaller base. In path B, nine good years lift the pot to ₹3.93 crore first, so the fall takes more rupees, about ₹95 lakh, yet leaves more than he started with.

Does Kunal's money last to 85?

From 70, assume both paths earn 2% a year above inflation (an October 2026 assumption). Path A runs out at 87 and path B at 95, both past 85.

Taken at the start of each year and raised with prices, a 4% start lasts about 29 years if the money earns 1% a year above inflation, 34 at 2% and 44 at 3% (October 2026 assumptions, not forecasts), as 25x or 33x of spending works out. At a steady 2%, Kunal's money would run out at 89. Path A earned about 2.9% above inflation over its first 15 years and still runs out sooner: its bad year came first.

At the guide's 30 times first-year spending, a 3.3% start, Kunal would need ₹2.4 crore, and path A would run out only at 99.

How does a bucket strategy stop him selling at the bottom?

A bucket strategy splits money by when it is spent. Kunal would keep the next three years' spending, ₹8,00,000, ₹8,48,000 and ₹8,98,880, in FDs or debt funds, and years four to seven, about ₹41.7 lakh, half in debt and half in equity: ₹46.3 lakh in debt in all. Money for year eight onwards stays in equity, a common guideline, not a rule, for money needed seven or more years away.

Why three years? At 12% a year, a 25% fall is made good in three years: 0.75 x 1.12 x 1.12 x 1.12 is about 1.05. The bucket and the debt half of the mix pay years one to four, so after the fall he sells no equity until it is back above its old level. Without the bucket, year two's ₹8,48,000 comes from equity units worth ₹11.31 lakh before the fall. Once a year he refills the debt from equity, but only when equity is at or above its old high; SWP tax works out the tax on each sale.

In Kunal's 25% fall, the bucket leaves less. With debt at an assumed 6.5% (October 2026), path A ends at about ₹2.60 crore at 70 and runs out at 84, short of 85, against ₹2.88 crore and 87 fully invested. In a deeper fall the bucket comes out ahead: with 40% lost in year one, he has ₹1.62 crore at 70 with it and ₹1.47 crore without, though both run out at 78. What it buys is no forced sale of equity after a market crash in retirement the size of Kunal's; a 40% fall empties the debt a year before equity recovers.

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Frequently asked questions

Trimming helps, and it needs no extra money. If Kunal, who takes ₹8 lakh a year from ₹2 crore, skips the price rise after a 25% fall in his first year, drawing ₹8,00,000 again in year two instead of ₹8,48,000 and raising it with prices from there, his money runs out at 90 instead of 87. The cost is spending about 6% less in real terms for the rest of his life.
Two to three years of spending in FDs or debt funds is often held from about age 50, and some hold up to seven by keeping years four to seven in a mix of debt and equity. More years in debt mean fewer forced sales after a fall and less growth in good years, so the number is a trade-off, not a rule.
The bucket runs down and some equity is sold before it has recovered, so the protection fades. On ₹2 crore drawing ₹8 lakh a year, if a 25% fall is followed by a 10% fall and then 12% years, Kunal, retiring at 55, has ₹1.64 crore at 70 if he set aside about ₹46 lakh in debt, against ₹1.58 crore if he stayed fully in equity, and both run out at 78.

This is general information for salaried individuals in India, not personalised financial advice.