Sequence-of-returns risk is the difference between “the market returned 7% on average” and “you ran out of money in 2018.” This page shows the exact year-by-year math on a real-world starting point: $1,000,000 invested Jan 1, 2000, withdrawing $50,000/yr for income, riding actual S&P 500 total returns through 2023.
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You’re 65. You just sold the property/business/asset. You have $1,000,000 in cash. You need $50,000/yr of retirement income, that’s a 5% withdrawal rate, well within the famous “4% rule” safe-withdrawal guideline. You put the whole $1M into a diversified S&P 500 index fund and start drawing.
It’s January 2000. The S&P 500 has averaged 7% over the long run. You feel fine.
The next three years (2000, 2001, 2002) will be the dot-com crash. Then 2008 will be the financial crisis. Then 2022 will be another double-digit drawdown. Each of those bear markets happens while you’re also withdrawing $50K/yr, locking in losses, shrinking the principal base that needs to compound back. This is sequence-of-returns risk.
Withdrawal of $50,000 at the start of each year, then the remainder rides the year’s S&P 500 total return (dividends reinvested). Negative years shaded red.
| Year | Start balance | Withdraw | Post-w/d | S&P return | End balance |
|---|---|---|---|---|---|
| 2000 | $1,000,000 | −$50,000 | $950,000 | −9.1% | $863,550 |
| 2001 | $863,550 | −$50,000 | $813,550 | −11.9% | $716,738 |
| 2002 | $716,738 | −$50,000 | $666,738 | −22.1% | $519,389 |
| 2003 | $519,389 | −$50,000 | $469,389 | +28.7% | $604,103 |
| 2004 | $604,103 | −$50,000 | $554,103 | +10.9% | $614,500 |
| 2005 | $614,500 | −$50,000 | $564,500 | +4.9% | $592,200 |
| 2006 | $592,200 | −$50,000 | $542,200 | +15.8% | $627,870 |
| 2007 | $627,870 | −$50,000 | $577,870 | +5.5% | $609,652 |
| 2008 | $609,652 | −$50,000 | $559,652 | −37.0% | $352,581 |
| 2009 | $352,581 | −$50,000 | $302,581 | +26.5% | $382,765 |
| 2010 | $382,765 | −$50,000 | $332,765 | +15.1% | $383,012 |
| 2011 | $383,012 | −$50,000 | $333,012 | +2.1% | $340,005 |
| 2012 | $340,005 | −$50,000 | $290,005 | +16.0% | $336,406 |
| 2013 | $336,406 | −$50,000 | $286,406 | +32.4% | $379,201 |
| 2014 | $379,201 | −$50,000 | $329,201 | +13.7% | $374,302 |
| 2015 | $374,302 | −$50,000 | $324,302 | +1.4% | $328,842 |
| 2016 | $328,842 | −$50,000 | $278,842 | +12.0% | $312,303 |
| 2017 | $312,303 | −$50,000 | $262,303 | +21.8% | $319,485 |
| 2018 | $319,485 | −$50,000 | $269,485 | −4.4% | $257,628 |
| 2019 | $257,628 | −$50,000 | $207,628 | +31.5% | $273,031 |
| 2020 | $273,031 | −$50,000 | $223,031 | +18.4% | $264,069 |
| 2021 | $264,069 | −$50,000 | $214,069 | +28.7% | $275,506 |
| 2022 | $275,506 | −$50,000 | $225,506 | −18.1% | $184,690 |
| 2023 | $184,690 | −$50,000 | $134,690 | +26.3% | $170,114 |
| 2024 start | $170,114 | (remaining) | — | — | $170,114 |
The S&P 500 averaged ~7.2% per year from 2000 to 2023 (total return, dividends reinvested). On paper that’s a great long-run return. But the order of the returns matters far more than the average when you’re drawing income:
The market produced its long-run average return. The portfolio still nearly went to zero. That’s sequence-of-returns risk. It’s the single biggest unaddressed risk in retirement income, and it’s the reason “just invest your sale proceeds in the market” isn’t actually a retirement plan, it’s a bet on the order of returns showing up favorably.
The Structured Installment Sale eliminates sequence risk on the portion of your wealth that’s structured because:
It’s an argument against putting 100% of your sale proceeds into the market and calling it a retirement plan. The two-pool framing solves this:
Sequence-of-returns risk doesn’t go away on the Pool B side, but the floor from Pool A means you don’t have to sell into a down market to fund the next month’s grocery bill. The structured floor lets the cash pool ride out bear markets without forced selling. That’s exactly the dynamic the 2000-vintage retiree in the table above didn’t have.
The S&P illustration above is the classic case. But the same dynamic hits three other places retirees rely on for income:
The advanced calculator models the same sequence-of-returns scenarios against your actual sale price, basis, age, and income. Twenty-minute call to walk through whether SIS, or SIS + cash carve-out, fits your situation.
Run your specific scenario → 213-340-2018
A plain-English guide for sellers: how a structured installment sale defers the tax when you sell a business, practice, or property — the math, the alternatives, and how to know if your deal fits.
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📞 Hans Goldstein · 213-340-2018 · CA Insurance License #4322192 · Independent §453 specialist · Goldstein & Co. LLC
