Can I retire with $1 Million? The hidden risk most people miss
When most people ask themselves:
“Can I retire with $1 Million?”
They are usually thinking about averages.
- Average returns.
- Average life expectancy.
- Consistent retirement spending.
Despite current volatility in markets, it has been some time since we have had a sustained market draw down, which can hurt investors drawing off growth assets, such as retirees drawing from super pensions to fund their retirement lifestyle.
If we think about the GFC, from late 2007 through to early 2009, global share markets fell significantly, with major indices losing around half their value from peak to trough.
This highlights one of the biggest risks most people don’t fully appreciate, sequencing risk. It’s not just about how markets perform over time. It’s about when those returns occur.
What is sequencing risk?
Sequencing risk is not just about the return you earn over time, but when those returns occur.
Two people can:
- Earn the same average return
- Draw the same income
- Start with the same balance
…and still end up with very different outcomes.
This is because what happens in the early years of retirement matters more than most people realise.
Let’s look at a worked comparison.
Two couples, same position
- Age 62
- $1,000,000 in super
- Drawing $80,000 per year
- Same investments and same long-term average return
The only difference is the order in which returns occur.
The numbers tell the story
Below is a simplified example using the same set of returns over 7 years, just experienced in a different order.
| Year | Couple 1 Return | Couple 1 Balance | Couple 2 Return | Couple 2 Balance |
| Start | – | $1,000,000 | – | $1,000,000 |
| Year 1 | -15% | $770,000 | +5% | $970,000 |
| Year 2 | -10% | $613,000 | +6% | $948,200 |
| Year 3 | -5% | $502,350 | +7% | $934,574 |
| Year 4 | +8% | $462,538 | +8% | $929,340 |
| Year 5 | +7% | $414,916 | -5% | $802,873 |
| Year 6 | +6% | $359,811 | -10% | $642,586 |
| Year 7 | +5% | $297,802 | -15% | $466,198 |
Assumes returns are applied first, followed by an $80,000 annual withdrawal.
What this shows
Both couples:
- Experienced exactly the same returns
- Drew exactly the same income
But the outcome is very different.
After 7 years:
- Couple 1 has around $298,000 remaining
- Couple 2 has around $466,000 remaining
- Couple 2 has $168,000 more remaining after only 7 years
That difference is driven purely by timing of investment returns.
The first couple experienced negative returns early, when their portfolio was highest and withdrawals had the greatest impact.
The second couple experienced positive returns early, which gave their portfolio time to build a buffer.
Why this matters
When markets fall early in retirement, the impact is amplified.
You are withdrawing income at the same time as your portfolio is declining. That means:
- More units are sold to fund income
- Losses are effectively locked in
- The capital base is permanently reduced
A simple example is to imagine you funded your drawings solely from BHP shares.
- At $45 per share, you’d need to sell about 1,780 shares to receive $80,000
- If the price falls 50% to $22.50, you need to sell about 3,560 shares to get the same $80,000
The income requirement is the same but you are selling twice as many shares when prices are low.
Once those shares are gone, they don’t recover with the market, which is exactly where sequencing risk becomes a real issue.
When markets perform well early, the opposite occurs. Growth happens before withdrawals have a meaningful impact, which improves the long-term position.
This is why two identical portfolios can behave very differently in retirement.
How we manage sequencing risk in practice
This is where portfolio structure becomes critical.
Many people enter retirement with what is effectively a single diversified portfolio. Everything sits together in one investment, often in a Balanced fund.
That approach may work well during accumulation, when you are not drawing on the portfolio, however in retirement, it creates a problem.
When income needs to be taken:
- Withdrawals are made from the entire portfolio
- That includes selling growth assets, even when markets are down
There are ways to manage this.
Creating a defensive pool in your portfolio
One of the key strategies we implement is separating assets based on purpose.
Rather than relying on a single pool, we create a dedicated defensive pool designed to fund short-term income and other capital needs, and a dedicated growth pool we know we don’t need to sell for quite some time.
In practical terms, this may involve:
- Holding cash and defensive assets to cover several years of income
- Holding cash for shorter term capital needs such as larger holidays, cars or caravans
- Using those assets to fund pension payments and capital draw downs during market downturns
- Allowing growth investments to remain invested and recover over time
This allows our clients to avoid being forced to sell growth assets when markets are down.
Why this changes outcomes
When this structure is in place, the experience of retirement improves.
Instead of reacting to market movements:
- Income continues to be funded from stable assets
- Growth investments are given time to recover
- The overall portfolio becomes more resilient
What I have seen first hand as a Financial Planner is that when this strategy is used, clients become more comfortable with the growth asset exposure they do have.
Final thoughts
When people ask whether they can retire with $1 million, they are usually focused on returns and balances.
But an equally important question is: How does your plan hold up if markets don’t cooperate early on?
Because that is often where the real risk lies.
With the right structure, sequencing risk can be managed.
Without it, even strong long-term returns may not deliver the outcome you expect.
If you are approaching retirement, understanding how your income would be funded across different market conditions can provide a much clearer view of how sustainable your plan really is.
If you’d like to see how this would apply to your own position, feel free to reach out and we can walk through it together.
General Advice Warning: The information in this article and the links has been prepared for general information purposes only and does not take into account your personal objectives, financial situation or needs. It is not intended to provide commercial, financial, investment, accounting, tax or legal advice. You should, before you make any decision regarding any information, strategies, or products mentioned in this article, consult a professional financial advisor to consider whether it is suitable and appropriate for you and your personal needs and circumstances. Before making a decision to acquire a financial product, you should obtain and read the Product Disclosure Statement (PDS) relating to that product, together with the Target Market Determination (TMD).
