How Can Your Adviser Help Manage Sequencing Risk in Retirement?

What happens if markets fall just as you retire and start drawing down your savings?

Market movements are a normal part of investing, but a significant fall early in retirement can have a bigger impact than you might expect.

This is known as sequencing risk — and it’s one of the risks your financial adviser can help you plan for and manage throughout retirement.

Why Can Falling Markets Be a Problem in Retirement?

When you’re working, you’re generally contributing money to super and have time to wait for markets to recover.

Retirement is different because you’re usually withdrawing money instead of adding to it.

If markets fall early in retirement:

  • Your investments may temporarily be worth less.
  • You still need money to cover your regular living expenses.
  • Selling investments while their value is down can lock in losses.
  • Those investments are then no longer there to benefit from a future market recovery.
  • This could affect how long your retirement savings last.

This is why the timing of investment returns can matter just as much as the returns themselves.

How Can Your Adviser Help?

You can’t predict exactly when markets will rise or fall. However, your adviser can help build a retirement strategy that is prepared for different market conditions.

This may include:

  • Planning your cash flow – Making sure you have enough accessible funds available for your short-term spending needs.
  • Keeping a cash or defensive reserve – This may help reduce the need to sell growth investments during a market downturn.
  • Choosing where your income comes from – Your adviser can review which investments to draw from rather than automatically selling assets that have fallen in value.
  • Reviewing your spending – If markets experience a significant fall, temporarily reducing non-essential withdrawals may give your investments more time to recover.
  • Diversifying your investments – Spreading your money across different types of investments can help reduce your reliance on any one asset or market.
  • Regularly reviewing your strategy – Retirement can last for decades. Your adviser can adjust your investments, income and withdrawals as markets and your circumstances change.

You Don’t Have to Make These Decisions Alone

When markets fall, it can be tempting to react quickly or make decisions based on fear.

Having a retirement plan — and an adviser there to regularly review it — can help you stay focused on your longer-term goals rather than short-term market movements.

The aim isn’t to predict the next market fall. It’s to have a strategy in place so that when markets do fall, you’re better prepared to manage it.

If you’re approaching retirement or already retired, speaking with your financial adviser can help you understand sequencing risk and whether your retirement strategy is prepared for changing market conditions.

General advice warning: The information contained in this article is general in nature only and does not consider your personal objectives, financial situation or needs.