Sequencing Risk: How timing can make or break your retirement nest egg

Sequencing risk refers to the order and timing of investment returns which, when you are drawing down on your savings, can impact how long your retirement savings can last. In other words, in retirement it’s not just how much you earn, but when you earn it.

Why does timing matter?

Retiring during a period of positive returns enable income drawdowns to be fully or partially offset by positive investment returns. On the flip side, if retirement coincides with a period of negative returns, falling asset prices and income drawdowns can magnify the scale of capital losses and erode savings at an accelerated rate – ultimately diminishing the total value of remaining assets.

·         Losses early in retirement: if you experience significant market downturns early in retirement when you’re actively withdrawing funds, your portfolio can deplete much sooner. This leaves less capital remaining to recover when the market eventually rebounds.

·         The impact of withdrawals: during retirement, you’re likely to fund your lifestyle by making withdrawals from your retirement savings. Negative returns early on can hinder your portfolio’s ability to sustain your desired lifestyle.

An illustration: the impact of sequencing risk on portfolios in retirement

Let’s look at two identical investment portfolios of $600,000 - Portfolio A and Portfolio B. Performance of the two portfolios is identical and each portfolio withdraws $40,000 every year.

Now, here’s where things get interesting: although the performance for Portfolio A and Portfolio B is equal over 30 years, the timing of their returns makes a big difference.

Portfolio A starts off strong with a rising market, gaining 3%, 4% and 5% in the first three years.

On the other hand, Portfolio B faces a rough start, with the market dropping by -5%, -4% and -3% in the first three years.

Even though they both experience the same overall performance over 30 years, Portfolio B runs out of money by age 80, while Portfolio A lasts until age 90. 

This chart shows how the timing of returns, known as sequencing risk, can significantly impact how long your savings will last. It’s a reminder of how important it is to consider not just the returns, but when they happen.

How can you reduce or minimise sequencing risk?

·         Talk to a financial adviser: they can help you develop a personalised retirement plan that accounts for sequencing risk as well as the other risks in retirement.

·         Diversification: spreading your investments across various asset classes can help cushion the impact of market volatility. For this reason, it’s important to explore other strategies to safeguard your financial security.

·         Consider a lifetime income product: lifetime income products, such as Allianz Guaranteed Income for Life, minimise the impact of sequencing and market risk by generating a stable income. True to their name, lifetime income products offer a guaranteed income for life. Think of it an ‘insurance’ against the various risks in retirement – including sequencing risk.

_{^ Assumes $600,000 initial portfolio value at age 60 with $40,000 annual withdrawals for both portfolios. Portfolio A gains 3%, 4% and 5% in the first three years whilst Portfolio B experiences -5%, -4% and -3% over the same period. The same sequence of average returns ranging from -3% to 9% are used from year 4 in both portfolios. No fees apply across the projected period.}

_{*  An investor can start their guaranteed lifetime income anytime after the third year of commencing the AGILE investment.}

_{# Up to a Maximum Return.}

_{+  During both Growth and Lifetime Income Phases, investors are free to make Full or Partial Withdrawals from their Investment Value at any time. During the Growth Phase, investors have access to a Free Withdrawal Amount (FWA) equal to 5% of their initial Investment Amount, available annually. Withdrawals in the first 10 years may be subject to a Market Value Adjustment. Withdrawals will also reduce their potential Lifetime Income Payments. If an investor selects the Age Pension+ Option, they will no longer have access to the FWA in the Growth Phase, and the available Withdrawal Value will be limited to the maximum amount allowable under the social security Capital Access Schedule.}

_{This material is issued by Allianz Australia Life Insurance Limited, ABN 27 076 033 782, AFSL 296559 (Allianz Retire+). Allianz Retire+ is a registered business name of Allianz Australia Life Insurance Limited. This information is current as at November 2025 unless otherwise specified and is for general information purposes only. It is not comprehensive or intended to give financial product advice. Any advice provided in this material does not take into account your objectives, financial situation or needs. Before acting on anything contained in this material, you should speak to your financial adviser and consider the appropriateness of the information received, having regard to your objectives, financial situation and needs.}

_{No person should rely on the content of this material or act on the basis of anything stated in this material. Allianz Retire+ and its related entities, agents or employees do not accept any liability for any loss arising whether directly or indirectly from any use of this material. Past performance is not a reliable indicator of future performance.}

_{Use of the word ‘guarantee’ in this material refers to an assurance that certain conditions or contractual promises will be fulfilled by Allianz Retire+ from the available assets of its Statutory Fund No 2, in relation to the product terms. This includes ‘guaranteed’ income payments in the Lifetime Income Phase which will be paid from the available assets of Statutory Fund No 2, noting that Allianz Retire+ may terminate the product in certain limited circumstances as outlined in the Product Disclosure Statement referred below.}

_{Allianz Australia Life Insurance Limited is the issuer of Allianz Guaranteed Income for Life (AGILE). Prior to making an investment decision, investors should consider the relevant Product Disclosure Statement (PDS) and Target Market Determination (TMD) which are available on our website (www.allianzretireplus.com.au).}