The economic and investment environment Australians are retiring into today looks very different from only a few years ago. Higher inflation and interest rates, combined with global economic and geopolitical uncertainty, are putting pressure on investment markets and household budgets.
For those still years from retirement, these shifts may be less concerning because they have more time to ride out market downturns. Those nearing retirement have a much shorter window to recover. Protecting the capital already accumulated can therefore become more important than pursuing higher returns.
The years before retirement are also a critical planning window. Effective retirement planning at this stage involves two objectives: using your remaining working years to strengthen your retirement savings while protecting what you’ve already built.
Market volatility and sequencing risk can both affect how much capital you ultimately take into retirement. A financial planner who specialises in retirement planning can help you understand these risks and develop a strategy to manage them.
What is sequencing risk and why does it matter?
Sequencing risk is the risk that the timing and order of your investment returns affect how long your retirement savings last. It becomes particularly important as you approach retirement because you are preparing to shift from contributing to your investments to drawing an income from them.
Average returns often don’t tell the whole story. Two retirees could experience similar average returns over time, yet end up in very different financial positions depending on when their strongest and weakest investment years occur.
Research by the Conexus Institute in April 2026 illustrates how significant this risk can be. Modelling a hypothetical decade of 0% real investment returns on superannuation, it found that average retirement income could fall by around a quarter to a third compared with a baseline of 3% real returns, with retirement savings potentially running out seven to nine years earlier than planned.
The modelling also showed that outcomes varied depending on when the period of weak returns occurred, with a downturn in the early years of retirement potentially proving more damaging than one in the lead-up to retirement. This is because once withdrawals begin, investments may be falling in value while money is being withdrawn. Selling investments to fund those withdrawals can crystallise losses, leaving less capital invested to benefit from a subsequent market recovery.
Understanding sequencing risk is one reason retirement planning can benefit from the guidance of a financial adviser. They can assess your exposure to this risk and factor it into your investment and income strategy as retirement approaches.
Why protecting wealth becomes more important than chasing returns as retirement approaches
Investment markets are constantly changing, and today’s combination of higher interest rates, inflation and global uncertainty is a reminder of how quickly conditions can shift.
Earlier in your working life, you may have had greater capacity to accept short-term market volatility in pursuit of longer-term growth. With years of employment income and investment contributions still ahead, there was generally more time to recover from a downturn.
But as you near retirement, taking additional investment risk in pursuit of higher returns could expose the capital you have spent decades accumulating to significant losses at a time when rebuilding it may be more difficult. Protecting what you have built becomes increasingly important alongside continued growth.
While adopting a more defensive investment approach may form part of a capital preservation strategy, it doesn’t have to mean eliminating investment risk or moving everything into cash. Inflation gradually erodes purchasing power, and with retirement potentially lasting 20 or more years, maintaining an appropriate level of growth is still important.
The aim is to strike the right balance between growth, capital preservation, income and liquidity. Working with a financial planner can help you develop a strategy based on your income needs, financial position, risk tolerance and long-term retirement timeframe.
How a financial planner can help manage risks to your retirement capital
Market volatility and sequencing risk are only part of the picture. Your retirement capital may also be affected by inflation, rising living costs, unexpected expenses, health and aged care costs, and the possibility that your savings need to support you for several decades.
A financial planner can consider these risks alongside your income needs, assets and lifestyle when developing your retirement strategy. Depending on your circumstances and location, a Gold Coast financial adviser may recommend strategies such as:
- Making additional superannuation contributions before retirement, within applicable contribution rules.
- Using a transition-to-retirement strategy, where appropriate, to access some of your super while you continue working.
- Diversifying investments and adjusting the balance between growth and defensive assets.
- Using a bucket approach to separate shorter-term spending needs from longer-term investments.
- Coordinating income from superannuation, pensions, investments and other available sources.
- Maintaining cash reserves for planned and unexpected expenses.
- Modelling different scenarios for market downturns, inflation, spending and longevity.
- Considering the tax implications of different investment and retirement income strategies.
- Reviewing and adjusting the strategy as you approach and move through retirement.
Financial planning cannot eliminate every risk, but it can help you understand and prepare for them as part of a coordinated retirement strategy.
Balancing wealth growth with capital preservation
The years leading into retirement are both an accumulation opportunity and a risk-management period. While there may still be opportunities to strengthen your retirement savings, there is also less time to recover from significant investment losses.
Market volatility and sequencing risk mean returns should increasingly be considered in your retirement planning. Protecting capital doesn’t mean abandoning growth. It means ensuring the investment risk you’re taking is appropriate for your changing circumstances as retirement draws closer.
The years leading into retirement are both an accumulation opportunity and a risk-management period. While there may still be opportunities to strengthen your retirement savings, there is also less time to recover from significant investment losses.
Market volatility and sequencing risk mean returns should increasingly be considered in your retirement planning. Protecting capital doesn’t mean abandoning growth. It means ensuring the investment risk you’re taking is appropriate for your changing circumstances as retirement draws closer.
Frequently asked questions
Capital preservation shifts the emphasis to protecting the retirement funds you’ve built up, rather than continuing to focus mainly on maximising growth. It doesn’t mean avoiding investment risk altogether; it means balancing growth and risk in a way that’s appropriate for a shorter time horizon, so your savings can support you throughout retirement.
There’s no set answer, as it depends on your personal circumstances, but reviewing your investment risk five to ten years before retirement can provide time to make adjustments and potentially recover from a market downturn. A financial planner can help you determine whether changes are necessary, alongside a broader assessment of your income needs, risk tolerance and retirement timeframe.
Sequencing risk is the risk that the timing and order of investment returns affect how long your retirement savings last. Poor returns shortly before or early in retirement can have a greater impact because you may be withdrawing money while investments are falling in value, leaving less capital available to benefit from a future market recovery.
A financial planner can help identify the risks most relevant to your circumstances, such as market volatility, sequencing risk, inflation and longevity, and build these into your retirement strategy. This might include adjusting your investment mix, maintaining cash reserves, or coordinating your income sources, along with regular reviews as your circumstances change. While risks can’t be eliminated entirely, a considered plan can help you better manage them.
General advice warning:
The information and any advice provided in this article has been prepared without taking into account your objectives, financial situation or needs. Because of that, you should, before acting on the advice, consider the appropriateness of the advice, having regard to those things.
