Sequencing Risk in Retirement: Protecting High-Value Portfolios
Written by Kurt Armbruster, Financial Adviser | Last reviewed: 20th September 2026
Sequencing risk refers to the danger that poor market performance early in your retirement, or shortly before, can have a disproportionately negative impact on the longevity of your superannuation savings. When you are drawing down capital to fund your lifestyle, a sharp market downturn can deplete your portfolio faster than historical averages might suggest, leaving less capital to recover during subsequent market rallies.
For high-value portfolios, managing this risk is paramount. Strategies often include maintaining a cash buffer to avoid selling assets during market dips, implementing a “bucket” strategy to separate liquidity needs from long-term growth, and regularly stress-testing your retirement income model against various market scenarios. By carefully planning your asset allocation and withdrawal rates, you can better protect your portfolio against the volatility inherent in financial markets.
Why sequencing risk matters most around retirement
The core vulnerability during the transition into retirement stems from the compounding effect of negative returns paired with ongoing capital redemptions. If an investor is forced to liquidate growth assets like equities while prices are depressed, those capital losses are permanently crystallised.
As a result, when market conditions eventually recover, the remaining asset base may be insufficient to generate the income required to sustain the individual throughout a prolonged retirement. This phenomenon underscores why traditional average-return calculations can be profoundly misleading when designing a drawdown plan.
The bucket strategy for managing sequencing risk
To construct a resilient defence against sequencing risk, many advisers advocate for a multi-tiered cash-flow architecture. By segregating funds into short-term liquid reserves, mid-term defensive assets, and long-term capital growth holdings, pre-retirees can navigate multi-year market downturns without touching growth assets.
A typical structure has three buckets:
- Cash bucket: typically covers one to three years of living expenses.
- Fixed-interest bucket: provides stable yield and replenishes liquidity as needed.
- Growth bucket: long-term capital growth holdings that are left to recover through market cycles.
This approach provides both financial protection and psychological comfort during periods of heightened market anxiety.
How would your retirement plan hold up in a bad first year? Ask our advisers to stress-test your portfolio.
Dynamic withdrawal strategies
Furthermore, dynamic withdrawal strategies can be employed to adjust annual drawdown amounts based on ongoing portfolio performance. Rather than taking a fixed percentage or constant inflation-adjusted amount every year, investors can set guardrails that modestly reduce discretionary expenditure following poor market years.
Combining dynamic drawdowns with periodic portfolio rebalancing ensures that capital preservation remains the central focus, allowing high-value superannuation portfolios to remain durable over decades. Our retirement planning advisers build these guardrails into every income plan.
Sequencing risk FAQs
Sequencing risk is the risk that the order of your investment returns hurts your retirement savings. Two retirees can earn the same average return over 20 years, but the one who suffers large losses in the first few years of retirement, while also withdrawing income, can run out of money much sooner.
Sequencing risk is highest in the five to ten years either side of your retirement date. That is when your balance is usually at its largest and you start drawing an income from it, so a market fall affects the most money and leaves the least time to recover.
A cash buffer holding one to three years of living expenses means you can keep paying your income without selling shares or other growth assets while their prices are down. This gives those assets time to recover, rather than locking in losses when you sell.
Generally no. A defined benefit pension pays a set income calculated by a formula, so the member does not carry market risk directly. Sequencing risk mainly affects account-based pensions and SMSF pensions, where your income is drawn from an invested balance. See our comparison of defined benefit super and SMSFs.
Retire with a plan that survives a bad market. Speak with our superannuation financial advice team about building a resilient retirement income. Book a chat or call 0449 890 302.
Related guides
This content is general advice only and does not take into account your personal objectives, financial situation, or needs. Before acting on this information, consider its appropriateness to your circumstances and seek professional financial advice. Authorised Representative of Templestone Financial Services Pty Ltd AFSL No. 523831. Trustee for the Armbruster Family Trust T/A Super Financial Advice.