Page 5 - Wealth-Adviser-Issue-125 (FWP)

ISSUE 125
NOVEMBER 2025

years straddling the transition from accumulation to draw- Lifetime annuities can provide cash flows that are not
down—is particularly vulnerable. Asset allocation must affected by market movements, while the Age Pension may
balance growth for longevity with risk mitigation for poten- offset losses for eligible part-pensioners.
tial downturns. While all retirees are exposed, those making Experts recommend a blend of approaches to address in-
lump-sum withdrawals or forced to withdraw at minimum dividual needs, including staggered lump-sum withdrawals,
mandated rates may have less flexibility to buffer losses. rigorous asset monitoring, and strategic use of government
Guidance from regulators and actuaries underscores the entitlements. No single strategy eliminates sequencing risk,
importance of diversified portfolios and dynamic with- but a tailored combination can help Australians make their
drawal strategies. An asset mix that includes both growth retirement savings last longer.
and defensive buckets can help tailor risk management to
individual needs, smoothing out shocks and giving invest- Action Steps and Adviser Guidance
ments time to recover. For retail investors, the way forward is clear: seek expert
advice, understand that sequencing risk is a practical threat,
The Bucket Strategy: Segmentation and Practical and act early to design portfolios that address both income
Benefits and growth. Regular reviews, dynamic asset allocation, and
The bucket strategy stands out as a practical solution for disciplined withdrawal strategies are critical.
sequencing risk. This method segments retirement savings Financial advisers play a central role in helping clients
into separate “buckets” according to time horizon and risk articulate goals, monitor outcomes, and adjust strategies in
profile—for example, a cash bucket for near-term income response to market realities. Professional guidance ensures
needs and growth assets for longer-term objectives. Australian retirees can balance risk, optimise drawdowns,
By drawing income from cash buckets during downturns, and protect against the twin threats of sequencing and
clients can avoid selling growth assets at depressed prices, longevity risk.
giving time for market recovery and preserving capital for
future years. Allocating three to five years of anticipated Reference List
withdrawals to low-risk assets and periodically topping up • Firstlinks, “Can the sequence of investment returns ruin retirement?”,
from growth buckets is the cornerstone of this approach. Annika Bradley, 2025-11-11.
This structure provides practical comfort, reducing anxiety • Challenger, “Sequencing risk explained”, Challenger Retirement, 2024-
during market turbulence and giving retirees more control 10-12.
over their spending. • SuperGuide, “How sequencing risk affects your retirement”,
The bucket strategy offers both psychological reassur- SuperGuide Editorial, 2025-06-17.
ance and tangible benefits. It is not a panacea, but when • BetaShares, “Sequencing Risk: What is it and How to Reduce it?”,
combined with regular reviews and rebalance protocols, can BetaShares Insights, 2022-11-01.
significantly reduce the impact of poor market periods at • Actuaries Institute, “Sequencing Risk and Asset Allocation”, Actuaries
retirement. Institute, 2025-05-06.
• Morningstar, “How to manage sequencing risk in retirement”, Christine
Alternative Approaches and Complementary Benz, 2021-08-11.
Strategies • NGSSuper, “Understanding risk and your retirement”, NGSSuper
Other sequencing risk management strategies comple- Editorial, 2025-02-24.
ment or enhance the bucket approach. Flexible withdrawal • Colonial First State, “Using the bucket strategy to make your money
rates, annuity-backed portfolios, and income overlays last longer”, CFS Editorial, 2024-11-12.
further insulate against “bad luck” years. • Lonsec, “Sequencing, Longevity and the Evolving Multi-Asset Toolkit”,
Guardrail withdrawal methods, in which drawdowns Lonsec Editorial, 2025-11-04.
are adjusted when portfolio values change sharply, help • PKF Australia, “Sequencing risk and how to combat it”, PKF Wealth
buffer sequencing risk without sacrificing income stability. Advisory, 2025-03-05.

5