Opinion
Is Trump going to destroy your retirement?
Bec Wilson
Money contributorIf you’ve been watching the markets lately – and thinking about retirement at the same time – you might be clutching your super statement with a rising sense of dread.
The ASX200 has tumbled more than 9 per cent in the past month, and headlines are screaming about a punishing rush for the exits. Meanwhile, US President Donald Trump is riding high, rattling global markets with new nationalist tariffs and rhetoric that sounds a lot like a return to trade wars. For retirees and pre-retirees, it’s a nerve-wracking time.
Local markets have fallen 9 per cent in the past month as the world reacts to Donald Trump’s latest round of tariffs.Credit: AP
I’ve been flooded with messages from people who are either planning for retirement or in the early days of what should be the most exciting time of their lives – only to find themselves gripped with fear that we’re staring down four years of turbulent, unpredictable financial markets.
The questions keep rolling in: “Should I drop my investments back to more conservative levels?” , “Should I pull my super out and put it all in cash?” and “Is this going to be another GFC-style hit to my retirement?”
So, is Trump about to wreck your retirement? Or is this just another case of markets overreacting to uncertainty?
Let’s look at the reality. When Trump pulled off a trifecta – winning the White House, the Congress and the popular vote – most analysts thought his pro-growth stance would outpace the risks of his more aggressive policies on tariffs and immigration.
A major market downturn in your early retirement years can permanently damage your nest egg.
Even our markets bought nicely into that theory – with the ASX200 up more than 5 per cent in the months after the election as people waited for tax cuts and big-business-friendly policies to rain money onto the US economy.
Since then, however, the ASX has dropped, rattled by softer US economic data and growing fears that Trump’s rapid-fire approach to policy could, in fact, slow the economy rather than boost it. Adding fuel to the fire, Trump has thrown cold water on the idea that his administration will step in to stabilise markets.
His Treasury secretary, Scott Bessent, has warned that the US economy is in for a “detox period” as it shifts away from public spending.
It’s important to understand that markets are reacting to the data, media and behaviour of the new president. And frankly, that’s nothing new. History tells us that market downturns are normal.
Over the past 100 years, markets have seen world wars, financial crises, political upheaval, global recessions and pandemics, and yet, they’ve always recovered. Trump’s policies may cause short-term turbulence, but long-term investors who stay the course tend to come out ahead.
While market downturns can be unsettling, if you’re approaching retirement – or already there – the real risk isn’t just volatility. It’s sequencing risk, something every retiree and pre-retiree needs to understand.
Sequencing risk is the risk that market downturns happen at the worst possible time for you – right when you’re starting to withdraw from your investments.
When you’re still working and adding to your super, market dips aren’t necessarily a bad thing. In fact, they can be beneficial because your regular contributions are buying assets at lower prices, setting you up for future gains. But once you stop contributing and start drawing down your super, everything changes.
A major market downturn in your early retirement years can permanently damage your nest egg if you need to draw down on your investments at those lower levels because you’re withdrawing from a shrinking pot of money before it has time to recover. And once those funds are gone, they’re gone. They can’t ride back up with the market.
To help you understand it, let’s look at two retirees, Jackie and Robert. Jackie retires in a strong market. Her super balance grows in her early years of retirement, so even as she withdraws money, her overall portfolio remains healthy.
Robert retires just before a downturn. His super takes a hit in the first few years, and as he withdraws funds to live on, his balance shrinks faster. Even when markets recover, his portfolio never fully bounces back because those early withdrawals reduced the amount left to grow.
This is sequencing risk in action. The same total returns over a long period don’t matter as much as when those returns happen in your portfolio.
Most people heading for retirement start to think about sequencing risk before a market downturn takes hold. And there are a few good ways to mitigate the risks of getting caught and having to sell when markets are down.
Hold a cash buffer. Having two to three years’ worth of living expenses in cash or defensive assets inside your super fund. This means you’re not forced to sell shares in a downturn. This gives your investments time to recover. And then, in a downturn, draw from your cash or bond allocations first, giving your growth assets time to recover.
Use a “bucket strategy”. This means segmenting your investments into short-term (cash for immediate needs), medium-term (bonds and defensive assets for stability) and long-term (shares and growth assets that can ride out market swings). And rebalance when markets are high, so there’s always cash in the short-term bucket when they’re low.
Reduce withdrawals in downturns. It is worth considering tightening your budget temporarily when markets are down. This can help prevent locking in losses for unnecessary reasons.
Consider a lifetime annuity or lifetime income stream. Having a guaranteed income layer within your super can provide peace of mind, ensuring you’re not forced to sell growth investments during market downturns just to cover essentials. This means you can ride out the tough times without worrying about where your next payment is coming from.
Stay invested, but diversified. And then of course, diversify, diversify, diversify. Portfolios that include some defensive assets can help smooth returns and reduce the impact of market downturns.
Keeping calm and not panic selling will help you ride out any volatility.Credit: Peter Braig
But what if you’re already in retirement and haven’t thought about sequencing risk?
If you’re already retired and the market’s down 9 per cent, the key is damage control, not panic. Selling now locks in losses, so if possible, draw from cash or defensive assets first and give your growth investments time to recover.
No cash buffer? Consider tightening withdrawals temporarily to avoid selling at a low. Now’s also the time to review your asset mix – not to make drastic changes, but to ensure you have enough stability for the years ahead.
So, will Trump destroy your retirement? The short answer: no – unless you let fear drive your decisions. Markets recover, and a calm, strategic approach will always serve you better than reacting in panic.
Bec Wilson is author of the bestseller How to Have an Epic Retirement. She writes a weekly newsletter at epicretirement.net and is host of the Prime Time podcast.
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making financial decisions.
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