As you move closer to retirement, the way you think about investment risk may often need to change. While growth remains important, protecting your capital and ensuring your investments support reliable retirement income can become increasingly critical.
Many Australians spend decades focused on growing their superannuation and investments. But as retirement approaches, the conversation often shifts from building wealth to preserving wealth and generating income. At MLS Financial, we help clients understand how investment risk may evolve as they move toward retirement, ensuring their strategy remains aligned with both their goals and their stage of life.
Why Investment Risk Matters More Near Retirement
When retirement is decades away, market downturns can often be ridden out over time. But as you approach retirement, a significant market fall can have a greater impact, particularly if you need to start drawing income from your investments.
This is often referred to as sequencing risk — the risk that poor investment returns early in retirement can reduce the longevity of your capital.
This is why reviewing risk settings as retirement nears is so important.
Growth vs Defensive Assets
Most investment portfolios include a mix of:
Growth assets, such as:
- Australian shares
- International shares
- Property securities
These can provide higher long-term returns but may experience greater volatility.
Defensive assets, such as:
- Fixed interest
- Cash
- Term deposits
These typically provide more stability but may offer lower long-term returns.
As retirement approaches, many investors begin increasing exposure to defensive assets to help manage volatility and protect capital.
Risk Should Reduce — But Not Disappear
A common mistake is assuming retirement means moving entirely to cash or low-risk investments.
In reality, retirement may last 20 to 30 years or longer, which means your money may still need growth to keep pace with inflation and support long-term income needs.
The goal is usually not eliminating risk altogether, but balancing:
- Liquidity to fund income needs
- Growth to support longevity
- Stability to manage market falls
Your Risk Profile May Need to Change
As you approach retirement, it can be worth reassessing:
- Time Horizon – Even if retirement is near, part of your portfolio may still have a long-term investment horizon.
- Income Needs – How much income you’ll need from investments can influence how much risk may be appropriate.
- Capacity for Loss – A fall in markets may be harder to recover from when regular withdrawals are being made.
- Emotional Comfort – Your tolerance for volatility matters too. A strategy only works if you can stay invested during uncertain periods.
Don’t Forget Sequencing Risk
One of the biggest risks in retirement isn’t always poor long-term returns — it can be poor returns at the wrong time.
If markets fall early in retirement while you are drawing pension payments, you may be forced to sell growth assets when prices are lower, potentially damaging long-term outcomes.
Managing sequencing risk is often a key part of retirement portfolio design.
How MLS Financial Can Help
At MLS Financial, we help clients:
- Review investment risk as retirement approaches
- Align super and investment portfolios with retirement goals
- Structure diversified portfolios for growth and stability
- Manage sequencing risk and income sustainability
- Adjust strategies as circumstances change over time
The right level of investment risk is different for everyone and should reflect your objectives, assets, income needs and comfort with market movements..
Written by:
Adrian Guy – BBus (Finance & Economics), MLS Financial
Disclaimer:
This information is general in nature and does not take into account your personal objectives, financial situation or needs. You should consider speaking to a qualified financial planner before making any financial decisions. MLS Financial and Infocus Securities Australia Pty Ltd do not accept responsibility for actions taken based on this