Sequence of Returns Risk in Retirement. The Retirement Risk Nobody Talks About (Until It’s Too Late)

Welcome to 2026, I hope you all had a great time over Christmas/New years. At this time of year we personally swap our routine dog walks around the Darebin Parklands, with a few walks down at the Mornington peninsular beaches instead.

You know what keeps me up at night? It’s not market crashes. I’ve lived through enough of those. September 11 while working in London, the GFC, the dot-com bust, COVID 19.

What actually worries me is watching Australian’s ‘Pre-retirees’ retire at exactly the wrong time and watching their carefully built nest egg evaporate faster than they ever thought possible.

Let me tell you about Sequence of Returns Risk in Retirement. It’s the silent killer of retirement plans, and if you’re within five years of retirement, or already there. You need to understand this right now.

What is the Sequence of Returns Risk in Retirement?

Here’s the thing that catches people off guard: two investors can have identical portfolios, earn the exact same average return over 20 years, and one ends up comfortable while the other runs out of money. How’s that possible?

It’s all about timing.​ Sequence of Returns Risk in Retirement is the danger that you’ll experience poor investment returns early in retirement, right when you’re starting to draw income from your portfolio. Those early losses, combined with ongoing withdrawals, can permanently damage your retirement savings in a way that’s almost impossible to recover from.​

Think of it like this: if you’re 45 and the market drops 30%, no worries mate.  You’re still contributing to super, and those shares are essentially on sale. But if you’re 66, just retired, and taking $80,000 a year out to live on?

That same 30% drop can be catastrophic. Further reading: Challenger Sequencing risk Article​

Why The First Five Years Matter Most to the Sequence of Returns Risk in Retirement.

The research is pretty clear on this—the five years before and after retirement are the absolute danger zone. This is when your portfolio is typically at its largest (you’ve just finished accumulating), and you’re shifting from putting money in to taking money out.​

I’ve seen this play out dozens of times in my years working with retirees. A business owner sells their company, rolls a couple million into super, retires at 62, and then, bang, the market tanks in year one. They’re pulling out living expenses from a falling portfolio, which means they’re selling more units to generate the same income. When the market eventually recovers, they’ve got fewer units participating in that recovery. It’s brutal mathematics.​

Here’s a real example: Let’s say you retire with $1 million and need $50,000 annually. If the market drops 20% in year one, you’re now sitting at $800,000 before you even take your first withdrawal. Take out that $50,000, and you’re down to $750,000. Even if the market roars back 25% in year two, you’re only at $937,500. You’ve lost ground you’ll never make up. Compare that to someone who retires, the market goes up 20% in year one, they take their $50,000, and they’re sitting at $1.15 million. Different universe entirely, same average returns over time.​

The Australian Context: Superannuation Makes This Worse.

Now here’s where it gets interesting for us Aussies. Our superannuation system is brilliant. Genuinely one of the best retirement systems in the world, but it amplifies Sequence of Returns Risk in Retirement​ Why? Because once you move from accumulation phase to pension phase, you’re typically drawing a minimum percentage each year (currently 5% for those aged 65-74).

You don’t have the luxury of waiting out a bad market, you’ve got to take that money whether the market’s up or down.​ And with Division 296 coming into effect from July 1, 2026, anyone with total super balances above $3 million will pay an additional 15% tax on earnings above that threshold.

That means high-balance retirees face even more pressure to structure their drawdowns efficiently. Because poor sequencing could push them over thresholds they’d otherwise avoid.​

I’ve been helping clients navigate this exact scenario. We had a client last year, a former IT executive with $2.8 million in super, who was adamant about retiring at 60. Market was volatile, and I showed him the modelling. Retiring in 2024 versus waiting until 2026 could mean a $400,000 difference in his account balance by age 75, purely due to sequencing.

He waited. Still playing golf, still enjoying life, but he gave his portfolio two more years of contributions and positive returns before flipping the switch.

ATO super rules

Five Strategies to Protect Yourself from Sequence of Returns Risk in Retirement.

So what do you actually do about this? You can’t control the market, but you absolutely can control your exposure to Sequence of Returns Risk in Retirement.

• Build a cash buffer before retirement. I typically recommend clients hold 2-3 years of living expenses in cash or cash-like investments before retiring. This means if the market crashes right after you retire, you’re not forced to sell growth assets at a loss—you can draw from your buffer while waiting for recovery. Think of it as insurance you hope you never need.​

 

• Adjust your asset allocation gradually. Don’t go from 80% growth assets to 80% defensive assets overnight just because you hit 65. That’s lazy planning. We gradually de-risk portfolios starting about five years before retirement, moving to a more balanced allocation (typically 50-60% growth, 40-50% defensive) that still generates returns but cushions against severe drawdowns.​

 

• Maintain flexible spending. Your retirement spending shouldn’t be fixed—it should flex with market conditions. In good years, take that overseas trip. In down years, local holidays are just fine. Clients who can adjust spending by even 10-20% in down years dramatically improve their retirement outcomes.​

 

• Consider income layering. This is where it gets sophisticated. We layer different income sources. Some from super, some from investment properties, perhaps some from part-time work in early retirement, and definitely factoring in the Age Pension for those who qualify. Diversifying income sources reduces pressure on any single asset pool.​

 

• Strategic use of account-based pensions vs. accumulation. Many retirees don’t realise you can keep some super in accumulation phase while drawing from a pension account. This creates flexibility—you can draw from the pension in good years and leave accumulation assets untouched, or vice versa depending on market conditions and your tax situation.​

What Sequence of Returns Risk in Retirement Means For Small Business Owners.

If you’re a business owner planning your exit, sequencing risk should be front and centre in your planning, not an afterthought.​

I’ve worked with dozens of SME owners who’ve spent 30 years building a business worth $2-5 million, successfully navigate the sale, roll the proceeds into super, and then… wing it.

That’s madness. The timing of your business sale relative to market conditions, the structure of how you receive the sale proceeds, and how quickly you transition that capital into retirement income all matter enormously.

We’ve had clients deliberately stage business sales over 2-3 years partly to manage sequencing risk, it’s not all about tax, though that’s important too.

Read our Article on Small business exits and Family harmony

Don’t Leave the Sequence of Returns Risk in Retirement to Chance.

Look, I get it. You’ve worked hard, built wealth, made smart decisions. The temptation is to think you can figure this out yourself or just hand it off to a super fund and hope for the best. But sequencing risk isn’t theoretical—it’s mathematical. And the consequences of getting it wrong aren’t just a smaller portfolio, they’re running out of money at 82 with another decade to live.

I have spent years working with some of Australia’s largest super funds—Colonial First State, HOSTPLUS, CBUS—and then in advisory with NAB and RSM. I’ve seen the modelling, I’ve seen the failures, and I’ve seen the successes. The difference between the two almost always comes down to proper planning in that critical five-year window around retirement. If you’re within five years of retirement, or you’ve already retired and haven’t specifically addressed sequencing risk in your plan, let’s talk. AMGENT exists precisely to help business owners, professionals, and pre-retirees navigate this stuff with clarity and confidence. This isn’t about beating the market—it’s about not letting the market beat you right when it matters most.

Try our retirement simulator here

FAQ’s.

Don’t let Sequence of Returns Risk in Retirement derail your retirement plan, book a complimentary 20-minute Sequence of Returns Risk in Retirement review. We’ll walk through your situation, identify your exposure, and give you clear next steps to protect what you’ve built.

No obligation. No sales pitch. Just straight advice from someone who’s navigated multiple market crashes for dozens of Melbourne business owners and professionals.

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