By Philippa Billings, Chief Advice Officer, Otivo
Two people can retire with the same balance, draw the same income and earn exactly the same investment returns over 20 years, and still end up in very different places. The only difference is the order in which those returns arrive. That's sequencing risk, and it matters most in the handful of years either side of the day work stops. For anyone planning to retire in 2027, with economists debating whether a downturn is coming, here's how it works and the three timing levers people use to think about it.
Sequencing risk is the risk that investment losses arrive just before or soon after retirement, when someone starts drawing down their savings. A fall early in retirement can do lasting damage because withdrawals lock in the lower values. As at October 2026, the preservation age is 60, according to ATO rules.
What is sequencing risk?
Sequencing risk, also called sequence-of-returns risk, is the effect that the order of investment returns has on a balance that's being drawn down. While someone is still contributing, the order of returns matters relatively little. Once they start making regular withdrawals, it matters a great deal.
The reason is that withdrawals are taken from whatever the balance happens to be worth at the time. If markets fall early in retirement, the same income has to be drawn from a smaller balance, so a larger share of the remaining assets is sold at low prices. Those assets aren't there to benefit when markets recover.
How can the same returns produce different outcomes?
Picture two retirees who each start with the same super balance and withdraw the same amount each year. Over 20 years, both experience exactly the same set of annual returns, but in reverse order.
The first retiree has the weak years first and the strong years last. The second has the strong years first and the weak years last. The average return is identical for both. Yet the first retiree's balance can end up far smaller, because their withdrawals in the early weak years sold assets at depressed values. The second retiree's balance had already grown by the time the weak years arrived.
The same returns in a different order can produce a very different retirement. That's the whole of sequencing risk in one sentence.
Why does sequencing risk matter more if you retire in 2027?
Sequencing risk is highest in what's sometimes called the retirement risk zone, roughly the five years either side of retirement. Balances are usually at their largest, and there's the least time left to recover from a fall.
Someone planning to stop work in 2027 is in the middle of that zone right now. A 64-year-old who intends to retire next year would start drawing on super at a time when the RBA has raised rates four times in 2026 and unemployment has risen to 4.6%. None of that means a market fall will happen. It means a fall, if it comes, would arrive at a sensitive point for them.
A 38-year-old facing the same economy is in a different position. They have decades of contributions ahead, and regular contributions during a downturn buy assets at lower prices.
What are the three timing levers near retirement?
The three timing levers are the parts of a retirement plan where timing, rather than investment returns, can change how exposed someone is to sequencing risk. Many people near retirement look at these first.
- When work stops. A later or gradual retirement can mean fewer years of withdrawals and more years of contributions. Part-time work in the first years can reduce how much needs to be drawn from super.
- How the first few years are funded. Some retirees keep a portion of their savings in lower-volatility assets or cash to cover a period of spending, so they're less likely to sell growth assets after a fall.
- How flexible spending is. Retirees who can trim discretionary spending in a weak year reduce how much they sell at low values.
How super is invested is also one of the levers that affects outcomes near retirement. The right mix depends on the individual, their other assets and how long their money needs to last.
How much do Australians aim to retire with?
The Association of Superannuation Funds of Australia (ASFA) publishes the ASFA Retirement Standard, a benchmark of what a comfortable retirement costs. Its current figures, published by MoneySmart for the June quarter 2026, put the lump sum needed at age 67 for a comfortable retirement at $630,000 for a single person and $730,000 for a couple. They assume the retiree owns their home and also receives a part Age Pension.
The bigger the balance, the larger the dollar effect of a fall in the early years. For someone approaching those figures, the timing of a downturn can matter as much as its size.
Frequently asked questions
Is sequencing risk the same as market risk?
No. Market risk is the chance that investments fall in value. Sequencing risk is about when that fall happens relative to withdrawals. The same fall has a bigger lasting effect at the start of retirement than later.
Does sequencing risk affect people who are still working?
Much less. While someone is contributing rather than withdrawing, a fall gives them the chance to buy assets at lower prices, and they have time for markets to recover.
When can I access my super?
The preservation age is 60. Common conditions of release include retiring after reaching preservation age, or turning 65.
Can a financial advisor help with retirement timing?
Adviser and advisor are two spellings of the same role. In Australia, only people listed on ASIC's Financial Adviser Register can use the title. Personal advice considers income needs, other assets and plans, which general information like this article doesn't.
Retirement timing can't control markets, but it can change how exposed a plan is to them. Otivo's retirement planning helps people estimate how much they'll need in retirement and what could improve their position, considering their age, super balance, other investments and super access age. Its super investment options advice helps people understand which options could give them a better chance of extending retirement income. Otivo Pty Ltd holds AFSL and Australian Credit Licence No. 485665.
Sources
- Association of Superannuation Funds of Australia, ASFA Retirement Standard: Super balances needed for comfortable retirement reach all-time high, 24 February 2026 — superannuation.asn.au
- ASIC MoneySmart, ASFA Retirement Standard (June quarter 2026 figures) — moneysmart.gov.au
- Australian Taxation Office, Conditions of release and preservation age — ato.gov.au
- Reserve Bank of Australia, Statement by the Monetary Policy Board: Monetary Policy Decision, 29 September 2026 — rba.gov.au
- Australian Bureau of Statistics, Unemployment rate rises to 4.6% in August — abs.gov.au
Disclaimer
The information in this communication is current as at October 2026 and has been prepared by Otivo Pty Ltd ABN 47 602 457 732, AFSL and Australian Credit Licence No. 485665. This content is general information only and has been prepared without taking into account your objectives, financial situation or needs. It is not personal financial or taxation advice and should not be relied on as such. Before acting on any information, you should consider its appropriateness having regard to your personal circumstances. This material must not be reproduced in whole or in part, or posted on any social media platform, without the prior written consent of Otivo Pty Ltd.