Are You in the Retirement Risk Zone? Learn How to Protect Your Savings

(07) 4243 5043 

[email protected]

Life Sumo Logo + Financial Advice and Planning + Personal Wealth Management
HOME ABOUT SUMO-MANAGED SUMOVERSE NEWS SUPPORT
Get in Touch
Life Sumo Logo + Financial Advice and Planning + Personal Wealth Management
HOME ABOUT SUMO-MANAGED SUMOVERSE NEWS SUPPORT

At vero eos et accusamus et iusto odio dignissimos ducimus qui blanditiis

Sign Up

YOUR CHEAT CODE TO BETTER FINANCIAL DECISIONS

Are You in the Retirement Risk Zone? Protect Your Savings from Sequencing Risk

Illustration of a concerned elderly man standing next to a menacing skeleton astronaut in an orange suit holding a weapon, with flying dollar bills and UFOs in the background. The image conveys themes of financial risk, retirement uncertainty, and external financial threats, set against a vibrant orange background with a futuristic aesthetic. Keywords: financial planning, retirement risk, sequencing risk, Life Sumo, financial security.
financial advice investment strategies retirement planning retirement risk zone retirement strategy
Jan 31, 2025

How Sequencing Risk Can Make or Break Your Retirement

What if the timing of your retirement could drastically impact the rest of your financial future? It’s called sequencing risk, and understanding it is the key to making your retirement savings last.

 

As you approach retirement, the financial strategies that worked during your career may no longer serve you. Those swings in the market that you once rode out comfortably can now have a much greater impact, especially during the critical retirement risk zone—the five to ten years before and after you retire.

 

This is where sequencing risk comes into play. If the market takes a downturn at the start of your retirement, the ripple effects on your savings can be significant. Let’s unpack how sequencing risk works, why it matters, and what you can do to safeguard your financial future.

 

1. What is Sequencing Risk?

Sequencing risk, or the sequence of returns risk, refers to the financial strain caused when negative market returns coincide with the early years of retirement.

 

Here’s why it matters:
  • During your working years, you can wait out market dips because you’re not drawing on your investments.
  • In retirement, you’re withdrawing funds regularly. If you start withdrawing during a market downturn, your savings may shrink faster than expected, leaving less to recover when the market rebounds.

 

2. How Sequencing Risk Can Impact Your Retirement

Imagine this:
  • You retire with $1 million in superannuation and plan to withdraw $40,000 annually, the minimum required for someone under 65.
  • In your first year of retirement, the market drops by 15%. Over the next three years, the market bounces back with gains of 5%, 10%, and 20%, respectively.

 

Even though the market eventually recovered, your portfolio would still struggle. Why? Because the money withdrawn during the first year’s downturn can’t generate future returns. That missing chunk of your savings creates a compounding effect, potentially shortening the lifespan of your portfolio.

 

Now, imagine the opposite scenario—retiring in a bull market. Positive returns early on can offset your drawdowns, giving your portfolio a stronger foundation for the future. Timing, as they say, is everything.

 

3. Ways to Minimise Sequencing Risk

While no one can predict market performance, there are strategies to reduce the impact of sequencing risk and protect your retirement savings.

 

1. Diversify Your Investments

A diversified portfolio spreads your risk across asset classes. Consider including assets less affected by market fluctuations, such as:
  • Fixed income investments: These provide stable returns regardless of market performance.
  • Property investments: Rental income can offer consistent cash flow during market volatility.

 

Pro Tip: Unsure how to structure your portfolio? Download our Sumo Life Operating System Dashboard to track and plan your investments.

 

2. Adjust Your Spending

  • Review your expenses and look for ways to reduce discretionary spending, especially during market downturns.
  • If you’re withdrawing more than the minimum required from your super, consider scaling back temporarily.

 

Action Tip: Postpone non-essential expenses, like overseas travel, to preserve your savings during volatile markets.

 

3. Delay Retirement

If possible, consider staying in the workforce a bit longer. This gives your portfolio time to recover from any downturns while you continue benefiting from employer super contributions.

 

4. Consider Part-Time Work

Re-entering the workforce part-time can help supplement your retirement income. Beyond the financial benefits, part-time work can also provide social and mental stimulation.

 

Final Thoughts

Sequencing risk is a reality that every retiree should understand, but it doesn’t have to derail your plans. By diversifying your investments, adjusting your spending, and staying flexible, you can reduce its impact and safeguard your financial future.

 

Looking for tailored advice? Book a free 15-minute consultation with one of our financial experts and learn how to build a retirement strategy that works for you.