You might be about to retire and are concerned if it is a good time to invest. The popular investment rule of thumb “time in the share market and not trying to time the market” does hold some truth. However, it does not help to alleviate what is called sequencing risk, where just after you invest your retirement savings there is a correction in the share market.

What is “sequencing” risk?

When you are approaching retirement, or have just retired, a sequence of poor returns can have a devastating impact on your retirement savings.

This is in contrast to when you are accumulating your wealth over many years and the sequence of returns does not matter to such an extent.

COVID-19 highlighted that if there is a downturn or correction in investment markets, the majority of asset classes decline at the same time. During the crisis, if you were about to commence drawing down on your retirement savings, or were already in the pension phase, you would have been drawing down on a much lower balance.

Why is it important to reduce sequencing risk?

Retirement projections are made based on average investment returns. However average returns are rarely experienced and are more likely to be less than or more than the average over a short period of time. If you experience below-average returns leading up to retirement and in the early phase of retirement, the fund balance is not likely to last as long as forecast.

A high allocation to growth assets is required to offset post-retirement risks such as ‘longevity risk’ and ‘inflation risk”. However, it does increase your exposure to volatility and the potential for sequencing risk.

Strategies to overcome sequencing risk

  1. Withdrawal Rates
    Consider combining different withdrawal strategies to target specific needs. For example, you may use a withdrawal amount to cover your essentials and a fixed percentage withdrawal (which will fluctuate depending on investment earnings) to meet your discretionary expenses.
  2. Plan to live to 100
    Most retirement planning is based on average life expectancy. You or your partner may live 10 or more years beyond that. Planning to live to 100 and saving accordingly, will help you accumulate sufficient funds to reduce the potential impact of sequencing risk. By focussing on the right number you need for the retirement you will be able to start saving earlier and let the benefits of compounding start to work.
  3. Downsize
    Australia’s taxation system encourages investment in property and in particular our principal place of residence. This results in property prices in Australia being amongst the most expensive in the world. You can make a significant difference to retirement savings by making a large contribution to your superannuation. Downsizing your home near retirement to make a one-off contribution is one way to free up capital.
  4. Reduce the cost of retirement
    Your retirement savings may last a lot longer if you could reduce the cost of retirement. Consideration of where you would like to live and what is important to you in retirement will need to be considered.
  5. Transition to retirement
    If it is possible to reduce time at work down to 4 days then 3 days, it will enable you to take advantage of tax rules encouraging you to work longer and also provide an additional retirement buffer. You might be able to use your additional income from working part-time to meet all your living expenses for the years you are in transition and let your retirement savings grow further.
  6. Investment Strategy
    Review your investment plan to consider how you can achieve the return on investment you require with less volatility and risk.
  7. Be Happy
    Planning what you will do in retirement is just as important as planning the funding of your retirement. What you do with your time will affect how much money you require.
  8. Guaranteed Income Stream
    If you are not prepared to take the risk of a share market downturn, it is possible to protect your income/ capital by purchasing an annuity or a similar product. There is a variety of guaranteed income stream prdocust available offering features for differing circumstances.


Financial modeling of retirement assumes that returns will be average. However, the reality is that returns are rarely average. The sequence of returns that you receive in retirement has a large impact on the ability to live a long and happy retirement.

Consider using strategies to reduce the impact of sequencing risk on your retirement lifestyle and provide enough flexibility so that you do not have to worry about investment markets and can focus on enjoying the next 30 to 50 years of your life.

For further tips on how to prepare for retirement, download the attached ebook “How to live an Inspired Retirement” or listen to the “Real Life Financial Planner”, Geoff Ivanac on our retirement podcast, “Real Life Retirement Radio”.

General Advice Warning: Any advice on this site is general advice only and does not take into account the objectives, financial situation or needs of any particular person. It does not represent legal, tax, or personal advice and should not be relied on as such. You should obtain financial advice relevant to your circumstances before making any decisions.