To Tyrone:
Your frustration is warranted. That is the main thing I see in your posts.
Yes: you lost the rewards you accumulated over 4+ years, and it will take nearly that long to recover from that kind of a loss.
(Slightly less due to improved production and resources.)
1 point that comes from this is that the game makes it easy to lose catastrophically, and hard to recover from this.
(Lose 4 years of work in 1 battle.)
I think this is a game flaw that has not been adequately addressed as of yet, but has been evident since the early days of TW style gaming.
Now, to answer your question:
How it can happen is that you attacked a force stronger than your force, either in a single battle, or in repeated attacks.
You seem to have made the assumption that you would continue to get rewards with 3-5% losses, and when that didn't happen, you pressed your battles to try and get the reward.
I am not an expert on the game, having only played about 2 weeks, but I have played many of the other 5 "clones" as well a numerous similar games.
What my experience tells me is: the higher the losses in S+D, the less likely you are to break even, or come close. While losses do tend to be added to the pool, there is some factor (I have not figured out) that limits the amount in the pool. This might be (for example) only adding the "first round" losses, but conducting the battle from many rounds until 1 side is eliminated.
Unlike PvP battles, the S+D battles result in 100% losses to 1 side, which means higher losses for the other side, but it is not clear how the game calculates these extra losses. What does seem to be clear is that they don't help your payback that I can tell. This is where most of the 3-5% (or higher) losses comes from over time.
For this reason, my strategy is to not push into high % losses. I did some testing on at least 3 clones with consistent results: high % loss battles lead to larger losses compared to the final payout. There might be ways to do this effectively, but I have not found it in my testing.
Short answer to your question is: It was possible because you were willing to take the risk. Even though it was not PvP, it still had risk, and apparently you miss judged the risk. It is possible (even likely) that you are close to your next pay out on S+D.