Retirement Income

Reducing risk in retirement

3 min read


13 Mar, 2020

We all think things will turn out better for ‘us’ than ‘them’. Such optimism can serve us well in life, but when it comes to money, balancing bias with facts is a much safer option. 

When it comes to your retirement there are four main risks that can impact your income:

  1. Longevity risk
    As you don’t know how long you will live, there is a chance that you could outlive your income or that you will have to rely solely on the Age Pension that may be insufficient to cover your basic living costs. 

  2. Inflation risk
    Even small increases each year to the cost of living can, over time, have a significant impact on how far your money will go. Without the right strategies in place, increases in inflation over time could mean your retirement income will no longer cover your living costs.

  3. Market risk
    Exposure to investments such as shares and property comes with the risk of market volatility. When investments earn negative returns, your retirement savings are falling in value. It’s important to consider how best to minimise the impact on your savings from market volatility during a 20-30 year+ retirement period.

  4. Sequencing risk
    Poor returns on investments when your savings are at their peak may significantly impact just how long those savings will last. In retirement, timing is everything. If the order and timing of your investment returns is unfavourable, it could result in your retirement income running out sooner than expected.

So, how can you reduce risks in retirement? One option is a lifetime annuity.

A lifetime annuity can give you an additional layer of protection in retirement and can act as a safety net giving you guaranteed income for life, regardless of how long you live or how share markets perform. 

Annuities works by complementing your other investments, together with the Age Pension (if you’re eligible). A lifetime annuity provides a foundation that you can depend upon to cover your basic living costs. Whilst they are designed to be held for life, there are withdrawal periods where you may access a lump sum if necessary. 

Unlike income from other types of investments, the income you receive from a lifetime annuity is not affected by share market or interest rate movements. This means the dollar value of your payments are guaranteed and will keep pace with inflation, no matter how the market is performing. 

Everyone’s financial situation is different – so it’s a good idea to seek professional advice. Contact your financial adviser to determine whether an annuity is right for you.