She Retired at 64 in January 2000 With $1 Million and Followed the 4% Rule. Her Neighbor Did the Same Thing in January 2003. By the End of 2025, One Had About $96,000 Left and the Other Had $6.1 Million. Here’s What Every Retiree Needs To Know About Sequence Of Returns Risk
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A woman who retired at 64 in January 2000 with $1 million in an S&P 500 index fund, took $40,000 out that first year and gave herself an inflation raise every January after that had about $96,000 left at the end of 2025. Her neighbor, who retired at 64 in January 2003 with the same $1 million, the same fund and the same 4% rule, had $6.1 million.
Both retirees are scenarios, and the gap between them is real. Each year’s result comes from the S&P 500’s published total return for that calendar year (price change plus dividends) and the Bureau of Labor Statistics’ annual inflation rate, which sets each January’s raise. There are no fees, taxes or Social Security in the math; both women would have had a Social Security check, and it is left out because it would be the same for each of them.
The gap is sequence of returns risk: the fund earned about 8.1% a year over the 26 years, but the first retiree sold shares into three straight losing years before any of the good ones arrived, and a withdrawal plan never gets back what it sells at the bottom. The limit on that reading is that she broke William Bengen’s rule before the market did. The 4% rule was built on a portfolio with half its money in bonds, and with half of hers in 10-year Treasuries she would have ended 2025 with about $1.3 million, more than she started with.
Three years that decided the next 23
The S&P 500 lost 37.6% of its value, dividends included, from the start of 2000 to the end of 2002. The first retiree took $123,870 out of the fund during those three years, because the rule told her to.
| Year | January withdrawal | S&P 500 total return | Balance at year end |
|---|---|---|---|
| 2000 | $40,000 | -9.10% | $872,640 |
| 2001 | $41,351 | -11.89% | $732,449 |
| 2002 | $42,519 | -22.10% | $537,455 |
| 2003 | $43,194 | 28.68% | $636,016 |
By January 2003 her withdrawal had grown to $43,194 and her balance had shrunk to $537,455. That withdrawal was 8.0% of what she had left. The rule she was following said 4%. The great 2003 rally, a 28.68% year, lifted her back to only $636,016, because she had so much less riding on it.
Her neighbor retired into that rally. Her first $40,000 came out in January 2003, and the fund turned the rest into $1,235,328 by December. Four years later, at the end of 2007, she had $1,542,947. The first retiree, drawing from the same fund under the same rule, had $674,455.
2008 hit both of them. It hurt one of them
The 37% loss of 2008 cut the second retiree to $943,008 and the first to $393,540. Then the rule did what it always does: both women took their inflation-raised withdrawal in January 2009. For the neighbor it was $47,878, about 5.1% of her balance. For the first retiree it was $51,701, about 13.1% of hers. One of those is a dent. The other is a hole the longest bull market in history could not fill.
From 2009 through 2021 the S&P 500 had one losing year, and it was a loss of 4.38%. The neighbor’s balance reached $1.7 million at the end of 2013 and $4.3 million at the end of 2021. The first retiree’s was $448,969 and then $342,855, after 13 years with 10 double-digit gains, because every January she took out a withdrawal that was now 12% to 19% of what she had.
The 18.11% year of 2022 took her to $227,479. Three strong years followed, and she still ended 2025 with $95,957, because by then her inflation-adjusted withdrawal was $75,327 a year. Her withdrawal for January 2026, raised for 2025’s inflation, is about $77,000. The account cannot pay it twice. Her neighbor ended 2025 with $6,149,654 and a withdrawal of $69,757.
Over 26 years the first retiree took out $1,420,295; the neighbor took out $1,200,567 over 23. Had the first $1 million sat untouched from January 2000, it would have been $7.5 million at the end of 2025; untouched from January 2003, $12.1 million. The market treated both women well in the end. The withdrawals did not.
What Bengen actually wrote
The 4% rule comes from a 1994 paper by William Bengen in the Journal of Financial Planning, and it was never an all-stock rule. Bengen tested every 30-year retirement from 1926 on, using large-company stocks and intermediate-term Treasury bonds, rebalanced each year. His conclusion: "Assuming a minimum requirement of 30 years of portfolio longevity, a first-year withdrawal of 4 percent, followed by inflation-adjusted withdrawals in subsequent years, should be safe." On the mix, he was blunt: "Stock allocations below 50 percent and above 75 percent are counterproductive."
The first retiree held 100% stocks, and that is where her money went. Rerun her retirement with half the account in 10-year Treasuries, rebalanced every January, using the Treasury returns in NYU professor Aswath Damodaran’s historical dataset. From 2000 through 2002, while the S&P 500 lost 37.6%, the 10-year Treasury returned 41.8%. Her balance at the end of 2002 would have been $851,452 instead of $537,455, and she would have ended 2025 with $1,279,287. At Bengen’s upper limit, 75% stocks and 25% bonds, she would have had $1,045,364.
The bonds have a price in the other direction. The 2003 retiree with the same 50/50 mix would have ended 2025 with $2.3 million instead of $6.1 million. That is the whole trade: the bond half costs you in a good sequence and saves you in a bad one, and nobody knows on the day they retire which sequence they are getting. Bengen himself raised his number to 4.7% in his 2025 book, A Richer Retirement, after testing a more diversified portfolio. It still holds bonds.
The cheaper fix: skip the raise
There is a second way the first retiree could have saved herself without owning a single bond. Keep the all-stock fund and the 4% start, but take no inflation raise in any January that follows a year the fund lost money. In her case that means six Januaries: 2001, 2002, 2003, 2009, 2019 and 2023. Everything else stays the same.
Under that one rule she ends 2025 with $780,840, and her 2025 withdrawal is $60,717 instead of $75,327. Six skipped raises, in the years that mattered most, are the difference between an account that is nearly gone at 90 and one that still holds most of what she retired with.
If you retire this January
Nobody retiring now knows which neighbor they are. The S&P 500 has had two losing years in the last ten, and the next three years are unknowable, so the planning question is what your plan does if 2026 turns out to be 2000. Three numbers answer it.
The first is the share of your money in bonds or cash. If the answer is zero, you are the first retiree, whatever your withdrawal rate says. The second is how many years of withdrawals that share covers; the first retiree needed three years of them, $124,000, to get through 2000 to 2002 without selling stock at a loss. The third is what you will cut after a losing year. Write it down before the losing year, because the rule that saved $680,000 in this example is one nobody follows once the raise is already in the budget.
The bottom line
Two retirees, the same $1 million, the same index fund, the same 4% rule, three years apart: $96,000 against $6.1 million at the end of 2025. The order of the returns did that, and the order is the one thing about a retirement nobody gets to choose. What you can choose is how much of the account is not in stocks when the bad years come first, and whether your withdrawal keeps rising when the account is falling. Bengen’s rule assumed both. The retiree who followed only the 4% part of it is the one with $96,000 left.
Contact [email protected] for any questions or corrections.
AJ spent 10 years writing about financial markets at The Motley Fool. His coverage centers on technology stocks and the broader macroeconomic trends, from interest rates to geopolitics, that shape where markets are headed next. AJ is drawn to the stories where big-picture economics and individual companies collide.
