Sequence of returns risk — a practical guide

1. What sequence risk is

Average return answers “how much growth over many years on paper.” Sequence answers “in what order did good and bad years arrive?” Bad years early — especially while withdrawing — hurt more than the same bad years later, because you sell more shares when prices are down and leave less capital to recover.

Coast FIRE is mostly an accumulation question, but sequence still matters if you later withdraw early, if you stop contributing with no cushion, or if lifestyle creep raises your full FIRE target.

2. Constant-return calculators

Simple tools (including RetireFire's primary numbers) assume a smooth real return every year. That is excellent for learning formulas and comparing levers. It is incomplete for path risk. Treat constant-return Coast and Years results as illustrations under assumptions, not destinies.

3. Two ways to explore path risk

• Lower the assumed return (and SWR). Crude, honest, available everywhere.
• Simulations — Monte Carlo (random paths from a model) or historical cycles (replay past markets). Different strengths; neither is a life probability.

Deep dive: Monte Carlo vs historical cycles.

4. How to read a success rate

• Ask what “success” means (terminal ≥ target? portfolio lasts N years?).
• Ask which model produced the paths (mean, volatility, history set).
• Prefer p10 / median / p90 bands over a single percentage.
• Never translate “82% of paths” into “82% chance my retirement works” without taxes, healthcare, and flexibility.

5. RetireFire free stress test (what it is)

On Coast FIRE and Years to FIRE we run 1,000 paths with independent annual shocks around your shared mean real return and a fixed volatility preset. Success = terminal wealth ≥ target. Model details live on Methodology. Core tools and this basic stress test stay free.

6. Checklist before you change behavior

• ☐I ran full FIRE at 3.5% and 4% SWR (or my own pair).
• ☐I re-ran Coast / Years at a lower real return.
• ☐I looked at p10 vs median on a stress test (or accepted I am using only sensitivity).
• ☐Emergency fund and healthcare are separate from the FIRE multiple.
• ☐If I stop contributing, I have a rule against lifestyle creep raising T.
• ☐A partner saw the same assumptions (share link / CSV / A-B compare).