Market Volatility and Your Retirement: What You Actually Need to Know

Every time markets have a bad week, the emails start. ‘Should we move to cash? Should we sell? Should we be worried?’

The honest answer is: it depends entirely on how your retirement income is structured.

And the uncomfortable truth is that most pre-retirees are exposed to the wrong kind of risk without realising it — not because they’ve done anything wrong, but because the conventional retirement approach is built around a strategy that puts you directly in the path of market timing risk.

Let me explain what I mean.

Two Types of Risk — Most People Only Think About One

When people say they’re worried about market volatility, they almost always mean one thing: they don’t want to see their balance go down. The number on the super dashboard drops, and it feels like a crisis.

But there are actually two very different risks in retirement:

• Capital risk: the risk that your assets lose value on paper
• Income risk: the risk that the income your portfolio generates dries up

Most financial commentary focuses on managing capital risk — smooth out the ups and downs, diversify, don’t panic. This isn’t wrong, exactly. But it’s focused on the wrong problem for someone approaching or in retirement.

Income risk is the one that actually determines whether your retirement works. And it’s almost never talked about.

The Beef Cattle Problem

The default investment strategy in Australian superannuation — and in most personal portfolios — is growth-oriented. Buy assets, watch them appreciate, sell them down over time to fund living expenses.

In the 2 Cows Strategy framework I use with clients, this is the beef cattle approach. You’re buying calves cheap, growing them, and selling at a profit. The whole strategy depends on timing — getting the right price, into whatever market happens to exist on the day you need the money.

For someone in their 30s, this works fine. You have four decades to ride out market cycles.

For someone who retires in a bad year and immediately starts selling assets to fund their living expenses, it’s a different story.

The Problem With Selling in a Downturn

Here’s a scenario that’s more common than most people realise.

You retire in 2026. Your portfolio is worth $800,000. You need $50,000 a year to live, so you start selling assets to fund your expenses. Then markets drop 25%. Your portfolio is now worth $600,000 — but you’re still selling $50,000 a year. Now you’re selling a much larger slice of a much smaller portfolio. The percentage you’re drawing down accelerates. The portfolio shrinks faster.

This is called sequence-of-returns risk, and it’s one of the most significant financial risks facing Australian retirees. It’s not the total return over 30 years that determines your outcome — it’s when the bad years hit. A terrible market in year one of retirement is far more damaging than the same terrible market in year fifteen.

The people most exposed to it are exactly the people the financial industry has trained for decades to invest like beef farmers — accumulate growth assets, then sell them down. It’s the architecture of FORO built right into the strategy.

The Dairy Cow Alternative

The alternative is to build your retirement around income-generating assets — investments that produce reliable cash flow regardless of what the market is doing.

Dividend-paying Australian shares. Fixed income. A-REITs. Income-focused ETFs and listed investment companies. Assets that pay you whether or not the market is having a shocker.

Think of it this way. Imagine a cow standing in a paddock, happily grazing, producing milk twice a day. The next day, the market for cattle falls 30%. Her value drops on paper.

Does she eat less grass? Does she produce less milk?

Of course not. She produces the same milk tomorrow that she did yesterday. The income keeps flowing for the farmer.

This is the core logic behind the 2 Cows Strategy — and it’s why investors with a dairy cow portfolio can sit back and collect their milk during a market downturn, while investors with a beef cattle portfolio are forced to sell at exactly the wrong time.

The tail doesn’t wag the dog.

“The 2 Cows Strategy: How to Build Retirement Income That Lasts”

What About Cash? Isn’t That Safe?

When markets fall, the instinct is to move everything to cash. It feels safe. The number stops falling.

But cash has a hidden cost that doesn’t appear on any screen: inflation. At 3% inflation, your purchasing power halves roughly every 24 years. If you’re 55 and expecting to live to 85, you’re looking at a 30-year retirement. Cash is not a retirement strategy — it’s a slow erosion of your standard of living dressed up as caution.

The goal isn’t to avoid volatility. It’s to structure your portfolio so that volatility is largely irrelevant — because your income doesn’t depend on selling anything.

Australia’s Franking Credit Advantage

There’s one more thing worth understanding for Australian retirees specifically.

When Australian companies pay dividends, they’ve already paid company tax on the profits. If you’re a retiree in a low or zero tax environment — which most self-funded retirees are — you receive not just the dividend, but the tax credit attached to it. In many cases, excess franking credits are refunded in cash by the ATO.

This makes dividend investing in Australia uniquely powerful. A fully franked 4% yield is worth significantly more than an unfranked equivalent source. Your dairy cows produce more milk than the headline figure suggests.

What the Difference Looks Like in Practice

Beef Cattle approach: $800,000 portfolio, sell $50,000/year, capital shrinks every year, exposed to sequence risk.

Dairy Cow approach: $800,000 portfolio generating 4.5% distributions = $36,000/year. Add part Age Pension of $16,000. Total: $52,000/year. Capital stays intact. No timing risk.

Same approximate income. Completely different stress levels — and completely different exposure to a bad market year.

What to Do With This

If your retirement income comes from dividends and distributions — and your lifestyle doesn’t depend on selling assets — a market fall is largely a paper event. Your job is to do nothing. Collect the milk. Wait for the beef price to recover.

If your retirement income does depend on selling assets, a market fall is a genuine problem. And the solution isn’t decided during the crash — it’s decided years earlier, in how you structure the portfolio.

That’s why the best time to think about this is now, while you still have time to reposition deliberately.

Ready to Find Out How Your Retirement Stacks Up Against a Bad Market?

Stop guessing how you’d hold up if markets dropped. Find out exactly where you stand with a One Page Financial Plan.

For $660 (inc GST), you’ll get:

✓ A clear picture of how much income your assets actually generate — not just what they’re worth

✓ A stress-test of your retirement income against different market scenarios

✓ An assessment of your exposure to sequence-of-returns risk

✓ A concrete plan to shift toward income-producing assets if needed

✓ 100% satisfaction guaranteed or you don’t pay

One Page Financial Plan

📧 Email: adam@suncow.com.au

📞 Phone: 0418 785 200

About the Author

Adam Carey is a fee-for-service financial planner in Balmain specialising in retirement income planning for Inner West locals aged 50–65.

No commissions. No ongoing fees. No BS.

He helps pre-retirees figure out if they have enough to retire — often discovering they can stop work sooner than they thought.