BY WEALTH ADVISER
Introduction
Retirement marks a pivotal phase in the financial journey of Australians, where the stakes are high and the consequences of poor investment timing can last a lifetime. The risk that the sequence of returns might erode retirement savings faster than expected is known as sequencing risk—and it matters most in those crucial years before and after retirement. Even when investment portfolios display similar average returns, the order in which gains and losses occur can dramatically shape outcomes for superannuation balances.
Understanding Sequencing Risk for Australian Retirees
Sequencing risk describes the impact of receiving the worst market returns at precisely the wrong time—usually when account balances are highest and withdrawals are starting. An unfavourable run of poor returns just as a client stops contributing and begins regular drawdowns can undermine decades of disciplined saving.
Consider two hypothetical retirees, each with the same starting super balance and identical annual withdrawals. If one experiences a market downturn in the first years of retirement, her capital is not only depleted by withdrawals but also by losses, leaving less to recover when markets bounce back. In contrast, a lucky retiree who sees strong returns early can maintain a larger base, riding out future volatility with less stress.
Data shows that sequencing risk is most acute at retirement, when the balance is high and earning or adjusting withdrawals is difficult. This risk doesn’t just threaten income security; it can force Australians to depend more on the Age Pension if their own super runs out faster than planned. The basic principle: the timing of losses and withdrawals matters as much as, and sometimes more than, the overall return profile.
Timing, Longevity, and Asset Allocation: The Intersecting Risks
Sequencing risk intersects with longevity risk and the need for careful asset allocation. As retirees confront more years in retirement—and often larger account balances—the possibility of outliving savings intensifies.
Expert discussions highlight that the “risk zone” — those years straddling the transition from accumulation to drawdown—is particularly vulnerable. Asset allocation must balance growth for longevity with risk mitigation for potential downturns. While all retirees are exposed, those making lump-sum withdrawals or forced to withdraw at minimum mandated rates may have less flexibility to buffer losses.
Guidance from regulators and actuaries underscores the importance of diversified portfolios and dynamic withdrawal strategies. An asset mix that includes both growth and defensive buckets can help tailor risk management to individual needs, smoothing out shocks and giving investments time to recover.
The Bucket Strategy: Segmentation and Practical Benefits
The bucket strategy stands out as a practical solution for sequencing risk. This method segments retirement savings into separate “buckets” according to time horizon and risk profile—for example, a cash bucket for near-term income needs and growth assets for longer-term objectives.
By drawing income from cash buckets during downturns, clients can avoid selling growth assets at depressed prices, giving time for market recovery and preserving capital for future years. Allocating three to five years of anticipated withdrawals to low-risk assets and periodically topping up from growth buckets is the cornerstone of this approach. This structure provides practical comfort, reducing anxiety during market turbulence and giving retirees more control over their spending.
The bucket strategy offers both psychological reassurance and tangible benefits. It is not a panacea, but when combined with regular reviews and rebalance protocols, can significantly reduce the impact of poor market periods at retirement.
Alternative Approaches and Complementary Strategies
Other sequencing risk management strategies complement or enhance the bucket approach. Flexible withdrawal rates, annuity-backed portfolios, and income overlays further insulate against “bad luck” years.
Guardrail withdrawal methods, in which drawdowns are adjusted when portfolio values change sharply, help buffer sequencing risk without sacrificing income stability. Lifetime annuities can provide cash flows that are not affected by market movements, while the Age Pension may offset losses for eligible part-pensioners.
Experts recommend a blend of approaches to address individual needs, including staggered lump-sum withdrawals, rigorous asset monitoring, and strategic use of government entitlements. No single strategy eliminates sequencing risk, but a tailored combination can help Australians make their retirement savings last longer.
Action Steps and Adviser Guidance
For retail investors, the way forward is clear: seek expert advice, understand that sequencing risk is a practical threat, and act early to design portfolios that address both income and growth. Regular reviews, dynamic asset allocation, and disciplined withdrawal strategies are critical.
Financial advisers play a central role in helping clients articulate goals, monitor outcomes, and adjust strategies in response to market realities. Professional guidance ensures Australian retirees can balance risk, optimise drawdowns, and protect against the twin threats of sequencing and longevity risk.
Reference List
• Firstlinks, “Can the sequence of investment returns ruin retirement?”, Annika Bradley, 2025-11-11.
• Challenger, “Sequencing risk explained”, Challenger Retirement, 2024- 10-12.
• SuperGuide, “How sequencing risk affects your retirement”, SuperGuide Editorial, 2025-06-17.
• BetaShares, “Sequencing Risk: What is it and How to Reduce it?”, BetaShares Insights, 2022-11-01.
• Actuaries Institute, “Sequencing Risk and Asset Allocation”, Actuaries Institute, 2025-05-06.
• Morningstar, “How to manage sequencing risk in retirement”, Christine Benz, 2021-08-11. • NGSSuper, “Understanding risk and your retirement”, NGSSuper Editorial, 2025-02-24.
• Colonial First State, “Using the bucket strategy to make your money last longer”, CFS Editorial, 2024-11-12.
• Lonsec, “Sequencing, Longevity and the Evolving Multi-Asset Toolkit”, Lonsec Editorial, 2025-11-04.
• PKF Australia, “Sequencing risk and how to combat it”, PKF Wealth Advisory, 2025-03-05.
