You’ve spent decades working, saving diligently, and building a retirement nest egg. But what if the market crashes just as you retire? That’s the essence of sequencing risk — and it’s one of the most important, yet underappreciated, risks in retirement planning.
What Is Sequencing Risk?
Sequencing risk refers to the danger that the timing of your investment returns — particularly in the early years of retirement — negatively impacts how long your money lasts.
If markets fall when you begin withdrawing from your super or retirement investments, you may lock in losses that permanently damage your portfolio’s ability to recover.
Imagine two retirees with identical balances and the same average annual return — say, 6%.
One experiences strong returns early on. The other faces a downturn at the start.
Despite the same average return, the second retiree may run out of money years earlier.
This isn’t just theory. Think back to:
Global Financial Crisis (2008–09)
COVID market shock (2020)
If your retirement started just before these events, the impact would have been painful and long-lasting.
How Do You Protect Against Sequencing Risk?
The good news? You don’t need to predict markets — just plan smartly. Here are four proven strategies to reduce your risk:
1. Use a Bucket Strategy
Split your retirement funds into different “buckets”:
Short-term (1–2 years):
Cash or term deposits for daily expensesMedium-term (3–5 years):
Bonds or conservative funds for stabilityLong-term (5+ years):
Growth assets like shares to drive returns
This setup helps you avoid selling shares in a downturn, as you can draw from your short- and medium-term assets instead.
2. Be Flexible with Spending
When markets are down, reduce discretionary spending.
It’s simple — but effective. Pulling back slightly in bad years helps preserve your capital and gives your portfolio time to recover.
3. Consider Income Streams
Partially annuitising your super — turning a portion into a guaranteed income stream — can reduce your reliance on market returns and offer stability.
4. Delay or Stagger Retirement
Working part-time or retiring a year or two later:
Gives your portfolio more time to grow or recover
Reduces the number of years you’ll be drawing income
Final Thoughts
Sequencing risk isn’t about fear — it’s about awareness.
The order of your investment returns matters. A thoughtful strategy that includes buffers, flexibility, and a smart withdrawal plan can help you retire with confidence — no matter what the market does.
Because when it comes to retiring well, it’s not just how much you’ve saved —
it’s when you use it that can make all the difference.