Why does a market fall hurt someone drawing down their savings more than someone still saving?

Because the same fall does opposite things to the two of them. Someone still adding money buys more units at lower prices and has years for the market to recover. Someone living on their savings has to sell units to pay for the year — at the low price — and the units they sold are not there when prices recover. The damage is permanent, and it is worst in the first years of drawing down. This is called sequence-of-returns risk.

Order does not matter — until money moves

With nothing going in or out, the order of returns makes no difference to where you end up: multiplying the same yearly returns in any order gives the same answer. Add regular deposits or withdrawals and the order starts to matter a great deal.

The saver comes out ahead when the fall comes first, because their deposits bought in cheaply. The person drawing down ends about 137,500 worse off for the same reason in reverse: they sold at the bottom. The Society of Actuaries describes it in the same terms — someone with a long horizon may be able to wait for prices to recover, while someone who needs income now may be forced to sell when prices are down.

The danger window

The risk is concentrated in the first years of drawing down. Morningstar’s 2025 research looked at the simulated cases where an all-share portfolio ran out within 30 years, and found that nearly 70% of them had lost value by the end of year five. Bengen’s 1994 study showed the same in history: the inflationary slump of 1973–74 shortened the life of portfolios that had started drawing down as much as 20 or more years earlier. A saver’s exposure peaks in the opposite place — in the years just before stopping, when the balance is largest and there is least time left to add to it.

What reduces it

• A lower starting withdrawal rate leaves more room for a bad start (the 4% rule).
• Flexible spending. Bengen showed a person who began drawing down in 1929 could have had about 25% more wealth after 30 years simply by cutting his second-year withdrawal by 5%, once the market had already fallen about 30%, and staying at that lower level. Vanguard’s dynamic-spending example caps a cut at 2.5% after a 10% fall.
• A runway of safe money for the next few years of spending, so nothing has to be sold in a downturn. Morningstar notes that setting aside near-term spending reduces sequence risk by giving the portfolio time to recover (where money should sit).
• Secure income for essentials — a state pension, a workplace pension, an annuity — which Vanguard suggests using to cover basic spending (annuities).
• Some work in the early years, or delaying the date you stop after a bad year.

Common mistakes

• Judging a plan only by its average return. The average hides the order.
• Selling growth assets in a panic while still saving, which turns the saver’s advantage into the drawer’s loss (what to do in a crash).
• Holding no runway because the first years “will probably be fine”.

In Nivritee

The stress tests on the Retirement Tracker put the fall where it hurts. A 2008-style crash applies a 35% fall five years after you stop working; A dot-com style slump applies a 25% fall one year after you stop. Ticked together with other tests they compose into one line drawn against your plan (how stress tests work). On the Freedom Ladder, the Sustenance rung is your runway.