It has been hard to keep up with financial news lately. As Howard Marks aptly put it, “the world’s economy has been shaken like a snow globe.” Trump’s tariffs initially caused steep sharemarket declines, then they rebounded on news of the 90-day pause, and markets have been yo-yoing ever since.
We appear to be in a period of great global change which Ray Dalio has called a ‘once in a lifetime breakdown in the global order’. The only consistent thing with the Trump presidency so far is inconsistency, and it seems clear we are in for more volatility.
For long-term investors in their 30s and 40s this period of volatility will probably end up as a funny story and one of many bumpy patches on a long road. But for investors approaching retirement age, it couldn’t have come at a worse time. For investors who are about to retire, or who have just retired, any big losses now could have a severe impact on their future quality of life.
Investment losses around retirement age can severely reduce your future quality of life
While investment losses at any time hurt, the impact can be much more pronounced when they occur at or near retirement, leaving investors with insufficient time to recover. The technical term for this is sequencing risk – the risk that the ‘sequence’ of returns has a negative impact on an investor’s total savings. The chart below shows two people who retire at 67 in line with the Association of Superannuation Funds of Australia (ASFA)’s 2025 guidance on what are likely to need for a ‘comfortable retirement’. They both have ASFA’s recommended balance of $595,000, invest the full amount in the ASX 300, and withdraw the amounts ASFA suggests people need to be comfortable. The only difference is that Investor A retires in 1997, and Investor B retires in 2007.