Question 1

What is sequence of returns risk?

Accepted Answer

Sequence of returns risk is the danger that the timing of investment losses permanently damages a retirement portfolio. A large loss early in retirement forces you to sell assets at depressed prices to fund living expenses, leaving less capital to recover when markets rebound. The same average return over 30 years produces very different outcomes depending on whether the bad years come first or last.

Question 2

Why does it matter when you retire, not just the average return?

Accepted Answer

Because you are drawing down the portfolio at the same time markets may be falling. A retiree who retired in 2007 experienced two years of large losses (2008-2009) immediately, depleting the fund before recovery. A retiree who retired in 2009 experienced those same markets in reverse order and saw their fund grow. Average returns were similar over 20 years; outcomes were dramatically different.

Question 3

How can I reduce sequence of returns risk?

Accepted Answer

Common strategies include: holding 1-2 years of living expenses in cash so you do not sell growth assets during a downturn; using dynamic withdrawal strategies that reduce spending when portfolios fall; maintaining a diversified portfolio rather than concentrating in high-volatility assets; and considering a bucket strategy that segregates near-term spending from long-term growth assets.

Question 4

What does this simulator use to model sequence risk?

Accepted Answer

The full Advanced Calculator uses 98 years of real Australian and international market data (1928-2025) to model every historical retirement start year. You can see what your portfolio would have done retiring in 1929, 1973, 2000, or 2007. Monte Carlo simulation also generates 1,000 randomised scenarios to show the probability distribution of outcomes.

Sequence of Returns Risk Simulator

Open the Sequence Risk Scenario in the Advanced Calculator

Sequence of Returns Risk Simulator

Open the Sequence Risk Scenario in the Advanced Calculator

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