Page 4 - Wealth-Adviser-Issue-125 (FWP)

ISSUE 125
NOVEMBER 2025

SEQUENCING

RISK IN

RETIREMENT

HOW SMART

STRATEGIES

CAN SAFEGUARD

YOUR SUPER

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BY WEALTH ADVISER starting super balance and identical annual withdrawals.
If one experiences a market downturn in the first years of
Introduction retirement, her capital is not only depleted by withdrawals
Retirement marks a pivotal phase in the financial but also by losses, leaving less to recover when markets
journey of Australians, where the stakes are high and the bounce back. In contrast, a lucky retiree who sees strong
consequences of poor investment timing can last a lifetime. returns early can maintain a larger base, riding out future
The risk that the sequence of returns might erode retire- volatility with less stress.
ment savings faster than expected is known as sequencing Data shows that sequencing risk is most acute at retire-
risk—and it matters most in those crucial years before and ment, when the balance is high and earning or adjusting
after retirement. Even when investment portfolios display withdrawals is difficult. This risk doesn’t just threaten
similar average returns, the order in which gains and losses income security; it can force Australians to depend more
occur can dramatically shape outcomes for superannuation on the Age Pension if their own super runs out faster than
balances. planned. The basic principle: the timing of losses and
withdrawals matters as much as, and sometimes more than,
Understanding Sequencing Risk for Australian the overall return profile.
Retirees
Sequencing risk describes the impact of receiving the Timing, Longevity, and Asset Allocation: The
worst market returns at precisely the wrong time—usually Intersecting Risks
when account balances are highest and withdrawals are Sequencing risk intersects with longevity risk and the
starting. An unfavourable run of poor returns just as a need for careful asset allocation. As retirees confront more
client stops contributing and begins regular drawdowns can years in retirement—and often larger account balances—the
undermine decades of disciplined saving. possibility of outliving savings intensifies.
Consider two hypothetical retirees, each with the same Expert discussions highlight that the “risk zone” — those

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