If you're within ten years or so of retirement, there's a worry that tends to surface late at night: what if the share market crashes just as I stop work? You may remember colleagues who planned to retire in 2008 and quietly stayed on for years afterwards. It can feel as though the whole plan rests on luck — on whether the market happens to be kind in the handful of years you need it most.
That worry has a name: sequencing risk. It's real, it's under-discussed, and — this is the important part — there are practical ways to take most of its sting away.
What sequencing risk actually is
While you're saving and adding to your super, the order in which good and bad years arrive makes no difference to where you end up. A bad year early or a bad year late produces exactly the same final balance, because you're not selling anything along the way. Once you start drawing money out, that changes completely.
Here's a worked example. Imagine a retiree with $500,000, withdrawing $30,000 a year. Over ten years the market delivers nine years of 7 per cent returns and one fall of 20 per cent — the same set of returns in every case, just in a different order. If the bad year comes last, our retiree finishes the decade with about $404,000. If it comes first, they finish with about $307,000. That's a gap of nearly $100,000 from identical returns. And if there were no withdrawals at all? Both finish on about $735,000 — the order wouldn't matter one bit.
The reason is that withdrawing money in a downturn means selling investments at depressed prices. Those units are gone — they can't take part in the recovery. A paper loss quietly becomes a permanent one.
Why the years around retirement matter most
Advisers sometimes call the last five working years and the first ten retired years the retirement risk zone. Three things come together in that window. Your balance is the biggest it will ever be, so a percentage fall costs more dollars than at any other time of your life. You've stopped adding and started subtracting, so there are no new contributions buying cheap units for you. And the money has to fund decades of living, so early damage compounds for a very long time.
A market slump at 35 is a buying opportunity. The same slump at 62 can reshape your retirement — but only if it forces you to sell. That distinction is the key to everything that follows.
Three defences that actually work
1. Keep a cash buffer. Many retirees hold two to three years of planned spending in cash and term deposits, separate from their growth investments. When markets fall, the fortnightly income keeps coming from the buffer, and the shares stay untouched until prices recover. You never become a forced seller — which, as the example above shows, is where the real damage happens.
2. Stay flexible on spending. If your money is in an account-based pension, the government sets a minimum you must withdraw each year — 4 per cent of your balance if you're under 65, 5 per cent from 65 to 74. Those are floors, not targets. Retirees who can trim the discretionary extras — the second trip, the car upgrade — in a bad year give their capital a far better chance to recover.
3. Hold the right mix — which is not all cash. The instinctive response to sequencing risk is to sell everything risky the day you retire. But a retirement that starts at 60 can easily run 30 years, and an all-cash portfolio simply swaps market risk for inflation risk: the near-certainty that your money buys less every year. The aim is a mix that lets you sleep at night and keeps enough in growth assets to fund the later decades.
If you're behind — and what to watch
How much is actually needed? The Association of Superannuation Funds of Australia (ASFA) estimates a comfortable retirement costs about $55,923 a year for a single home-owner and $78,566 for a couple aged 65 to 84 (March quarter 2026), and that lump sums of roughly $630,000 for a single or $730,000 for a couple at 67 can support that — in combination with a part age pension. If your balance is well short of those numbers, that's not failure. The age pension is designed as a safety net, and it works in your favour here: if a market fall shrinks your assets, your pension entitlement can rise, cushioning part of the blow.
If you're behind, the levers that help most are unglamorous. Working even one or two years longer adds contributions, gives your balance time to grow, and shortens the years it must fund. Modest extra contributions through your 50s still have a decade or more to compound. What doesn't help is panic: switching everything to cash after a fall is the one move that locks the loss in permanently.
Two things are worth checking this week, whatever your balance. First, your split between growth and defensive assets — is it a decision you've actually made, or just wherever your fund's default put you? Second, ask yourself how many years of spending you could fund without selling a single share. If the answer is "none", you're carrying more sequencing risk than you need to.
Noel Whittaker's Retirement Made Simple (6th Edition) walks through all of this in plain English — the risk zone, account-based pensions, the age pension rules and how to structure your money so a bad year doesn't derail a good plan. Buy direct from the author for $19.95 — instant download, PDF and EPUB, updated for the current financial year.
This article is general information only and doesn't take account of your personal circumstances. Figures are current at time of writing and change each financial year. Consider seeking advice before acting.