The Math That Changes Everything
Here is the clearest way to understand why this matters.
Two investors each start with $500,000 at retirement. Each earns an average annual return of exactly 2% over five years. Each takes the same withdrawals each year to fund living expenses.
Investor A experiences bad years first — down 30%, then down 15% — before recovering with gains of 10%, 20%, and 25% in years three through five. Final balance after five years: $490,875.
Investor B experiences good years first — up 15%, then up 12%, then up 8% — before dropping 15% and then 30% in years four and five. Final balance after five years: $413,834.
Same average. Same starting point. Same withdrawals. The only difference is the order.
Investor B ends with $77,041 less than Investor A — purely because of when the market moved, not because of any decision either investor made.
Now scale this to a $1.4 million portfolio, 20 years of retirement, and Required Minimum Distributions that force you to sell shares every year regardless of market conditions. The difference in outcome between a retiree who experiences a major market drop in year one of retirement versus year fifteen of retirement is not $77,000. It is the difference between a retirement that works and one that runs out of money.
Required Minimum Distributions Make the Timing Problem Permanent
Sequence of returns risk is dangerous for any investor. It is catastrophic for 401(k) holders specifically — because the government removes your ability to control the timing.
Starting at age 73, the IRS requires you to withdraw a calculated percentage of your 401(k) balance every year. The percentage increases as you age. You cannot defer it, reduce it, or opt out. You withdraw on the government’s schedule, at the government’s required amount, regardless of what the market has done that year.
Here is why this is so destructive in the context of sequence risk. If the market drops 35% in the first year of your retirement, your $1 million 401(k) becomes $650,000. But your required minimum distribution is still calculated on a schedule — you are forced to sell shares at their lowest point to meet the legal requirement. Those shares are liquidated at the bottom. They do not recover for you because you no longer hold them.
A 35% market drop combined with a forced distribution is a double loss. You lose the value of the drop, and you forfeit the recovery — because the shares that would have recovered are gone.
To return from $650,000 to the original $1 million, the market would need to gain 53.8%. That recovery historically takes between three and a half and seven years. During those years, you continue taking required distributions. The math does not give you time to wait it out.
The Structural Answer to a Structural Problem
Sequence of returns risk is not a problem you solve with better investment choices or more disciplined behavior. It is a structural problem — one built into any vehicle that combines market exposure with mandatory distributions. The solution is a different structure.
A properly structured whole life insurance policy funded through the Infinite Banking Concept does not participate in market movements. The cash value grows on guaranteed interest and dividends every day — whether the S&P 500 is up 20% or down 35%. In 2022, when the S&P 500 fell 18%, properly structured IBC policies continued to grow. Not because of any investment strategy. Because the policy is contractually insulated from market performance.
This means there is no sequence to worry about. There are no down years. There is no forced timing.
When you need retirement income from an IBC policy, you access it through a policy loan — which is not taxable income — when you choose the timing, in the amount you choose, without triggering a required distribution schedule. The cash value that secures the loan continues to grow while the loan is outstanding.
You are not selling an asset. You are borrowing against one that keeps compounding. The distinction is fundamental — and it is the reason sequence of returns risk cannot exist inside a properly structured IBC policy.
The Question Worth Asking Before the Market Decides for You
The three videos in our DIAGNOSE series have covered three specific, mathematized dangers inside the conventional 401(k) framework: the access problem, the tax problem, and the timing problem. Each one is real. Each one is quantifiable. And each one compounds the others.
A high earner who cannot access their capital when an opportunity appears, who is building a tax obligation rather than tax-free wealth, and who has no control over when they are forced to liquidate in retirement — is not experiencing a returns problem. They are experiencing a structure problem.
Structure problems have structure solutions. We have been designing that solution — the Infinite Banking Concept — for thousands of clients across all 50 states since 2008, trained by Nelson Nash personally. The first step is simply seeing what the numbers look like at your specific income level.
Not the average. Your numbers. Your sequence. Your terms.
Go Deeper — Resources Available to You
Whether you are already working with us or are exploring Infinite Banking for the first time, the resources below are designed to take you further. Our eBooks and videos cover the same concepts we use every day with clients across all 50 states — clearly, without jargon, and at no cost to you.
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By: Isis B. Palicio, LUTCF, MBA | Pedro A. Palicio, MBA, Ph.D.
Infinite Banking Concepts® Authorized Practitioners | Universal Wealth Managers LLC