Sequence risk is about timing
Sequence risk is the risk that poor investment returns happen at the wrong time, especially early in retirement when withdrawals are starting.
If you are still saving into a pension, market falls can be uncomfortable but future contributions may buy at lower prices. In retirement, the situation is different because money may be coming out rather than going in.
Taking withdrawals during a market fall can leave less money invested for a recovery. That can make the long-term plan more fragile, even if the average return over time looks reasonable.
This is why retirement investing is not just about choosing a fund with a good long-term return. It is also about managing withdrawals, cash reserves, risk level and flexibility.
Ways to manage it
- Avoid taking more than the fund can reasonably support.
- Consider keeping some lower-risk assets or cash reserves.
- Review withdrawals after market falls.
- Match investment risk to retirement income needs.
- Get advice before making major drawdown decisions.