Retirement planning is often focused on building sufficient wealth to support future income needs.

However, the transition from accumulating wealth to drawing from it introduces a different type of investment risk; one that is driven not only by market performance itself, but by the timing of that performance.

This is known as sequencing risk, and it can have a significant impact on how long retirement savings ultimately last.

What is sequencing risk? 

Sequencing risk refers to the impact that the timing of investment returns can have when withdrawals are being taken from a portfolio.

• During the accumulation phase, individuals are still working, earning income, and building wealth through ongoing contributions to various investment accounts. Market volatility is often less damaging during this stage because capital continues to be added to the portfolio over time and there is generally a longer period available for recovery.
• Retirement marks the transition into the decumulation phase, where portfolios begin supporting your lifestyle through withdrawals.

Once withdrawals begin, periods of negative market performance can have a much greater impact, particularly if they occur early in retirement.

If investment values fall while withdrawals are being taken, more assets may need to be sold to generate the same level of income. This leaves less capital available to participate in any subsequent recovery.

Over time, this can compound the impact on future growth and potentially reduce the longevity of the portfolio.

The risk of early losses 

The early years of retirement are often the most sensitive from a planning perspective. 

A significant market decline shortly after retirement can have a lasting impact because the portfolio faces two pressures simultaneously:

• Declining market values  
• Ongoing withdrawals

By contrast, where investment markets perform more favourably during the earlier years of retirement, the portfolio benefits from a stronger capital base from which to absorb future volatility.

Importantly, sequencing risk does not necessarily reflect poor long-term performance. Two portfolios may generate similar average returns over time, yet experience very different outcomes depending on when positive and negative returns occur.

This is why sequencing risk is often driven more by timing than performance alone.

Managing sequencing risk

Sequencing risk cannot be eliminated entirely as market volatility remains a fundamental part of investing. 

However, retirement portfolios can often be structured differently to help reduce the impact that adverse market conditions may have during periods of withdrawal.

This typically involves balancing:

• Short-term income requirements 
• Longer-term growth objectives 
• Liquidity needs 
• Overall portfolio resilience

Rather than treating all invested capital the same way, retirement portfolios are often segmented according to different time horizons.

For example:

• Capital needed in the near term may be held in lower-volatility assets designed to provide stability and accessibility 
• Medium-term assets may retain some growth exposure while aiming to manage downside risk 
• Longer-term capital may remain invested for growth to support later stages of retirement and help offset inflation over time

This approach aims to reduce reliance on selling growth assets during periods of market weakness.

Long-term planning 

Sequencing risk highlights that retirement planning is not only about building wealth, but also about managing and sustaining wealth throughout retirement.

During accumulation:

• Contributions continue adding capital 
• Time horizons are generally longer 
• Volatility can often be tolerated more easily

During decumulation:

• Withdrawals increase sensitivity to market movements 
• Timing and flexibility become more significant 
• Portfolio structure becomes increasingly important

Managing sequencing risk therefore involves more than simply reducing investment exposure. It requires constructing portfolios that aim to balance growth, income, liquidity, and long-term sustainability simultaneously.

Structuring for retirement 

At Patterson Mills, we help clients structure portfolios not only for long-term growth, but also for how wealth will be accessed and maintained throughout retirement. 

Whether you are approaching retirement, reviewing your withdrawal strategy, or reassessing how your investments are positioned for long-term sustainability, sequencing risk forms an important part of the wider planning process. 

If you would like to review how your portfolio is currently structured to support your retirement objectives, contactez-nous with us today and book your initial, no-cost and no-obligation meeting.

Send us an e-mail to contactus@pattersonmills.ch or call us direct at +41 21 801 36 84 and we shall be pleased to assist you.