A recent guest on our podcast, Kevin Brunner, put it bluntly:
"Your electric bill doesn't adjust based on the stock market’s performance."
Unless you’re at or near retirement, this probably feels abstract. But the moment you start drawing down a nest egg to fund your life, that line becomes the whole game. Your bills don’t pause when the market takes a dive – you’re forced to sell into the drop, locking in losses exactly when you can least afford it.
Like most things in finance, this concept has a technical name: sequence of returns risk. And it’s the reason two retirees with the same starting balance, the same annual withdrawal, and even similar long-run averages can end up in dramatically different places.
Two retirees, same plan
Picture Bob and Linda. Both stop working with $1 million saved. Both pull $40,000 a year from a 60/40 stock-and-bond portfolio (the “4% rule”).
Let’s say that Bob retired in 1969 into a stretch of volatility in the stock market. But Linda’s retirement in 1982 immediately hit a run of good years.
After five years of $40,000 withdrawals, Bob had pulled out $200,000 – and his portfolio was slightly down. He had $964,000 left, essentially flat.
Linda took the same five years of withdrawals. Same $200,000 drawn down. But her portfolio balance grew to $2 million before she ever saw a losing year. Five years in, it was sitting at $2.16 million.
A $1.2 million gap after just five years. More than the full starting balance.
Twenty-five years later, compounding only widens the gap. Bob is at $4.9 million, and Linda at $12.6 million.
But the underlying average return of both portfolios? Within 2 percentage points of each other. Both portfolios “performed” more or less the same over 25 years.
Why the order of returns matters this much
When you withdraw money in a down year, you’re selling shares at a low price to cover bills that don't care what the market is doing.
Every dollar pulled out at depressed prices is gone from compounding for the rest of your life. Bob’s portfolio was structurally smaller every year than it should have been simply because of a few bad years early on. He had to sell to fund his life, and future up years had less to compound on.
But the math is only half of what’s happening.
Statistically, Bob is probably going to be fine. Most plans like his work out (at least that’s what the simulations say). But Bob isn't living in a simulation.
He's watching his retirement account shrink in the exact decade he was supposed to start enjoying it. The money meant to fund the next 30 years is melting in front of him, and he’s mostly powerless to stop it.
So he scales back.
Trips get cancelled. The things he’d planned to do for the grandkids quietly come off the list. Instead of enjoying his golden years, he’s constantly stressed about his shrinking nest egg.
Why cash flow changes the math (and the experience)
Now picture the same retirement, funded differently.
The same $40,000 a year coming in from distributions on income-producing real assets. The stock market can drop 30%, but the distributions keep arriving. Your nest egg is sending you a check without having to sell anything.
So your living expenses get paid from cash flow, not principal. Sequence stops mattering because nothing has to be sold to fund expenses.
The lived experience is different too. You’re not watching a balance shrink at the worst possible moment. You’re watching deposits show up on a schedule, regardless of the stock market’s antics.
You can live the retirement you planned…take the trips, see the grandkids, put the surplus back to work…instead of penny-pinching through it, worried about the next crash.
The cash-flow approach to investing can help you reach financial freedom, but it can also keep you from losing it once you’re there. And it lets the next 30 years feel like the retirement you planned, instead of a slow leak you’re trying to outrun.
Stock-market drawdown plans depend on sequence luck. But real-asset cash-flow plans don’t – they pay whether you retire into a bull market or the worst five-year stretch in living memory.