Australia’s retirement landscape has undergone a remarkable transformation. Thanks to compulsory superannuation, Australians now collectively hold savings that rival the size of the nation’s economy. Yet, while the system has excelled at encouraging people to accumulate wealth, the real challenge comes once retirement begins: shifting focus from building savings to enjoying and spending them wisely.
The Two Goals of Retirement
Most people are familiar with the first goal—growing their retirement nest egg. Through super contributions and investment performance, the emphasis has been on creating the largest possible balance. Government reforms, like the Your Future, Your Super performance test, reinforce this by tracking how funds perform against benchmarks. While this helps evaluate investment outcomes, it doesn’t address how those savings will eventually be used to support a retirement lifestyle.
That brings us to the second goal—turning savings into a reliable income stream. This part of retirement planning is often underestimated, yet it is just as important. Retirement isn’t simply about having money set aside; it’s about being confident enough to use it to maintain a lifestyle without worrying about running out.
From Performance to Practical Spending
Once you stop working, investment returns matter less on their own and more in combination with risks like inflation, longevity, and market volatility. A retiree may have a substantial balance, but if withdrawals coincide with poor market conditions, or if they live longer than expected, that balance can be depleted faster than planned.
Because of these risks, relying solely on investment benchmarks is not enough. Instead, retirees need a more flexible way to measure outcomes—one that reflects not just growth, but also sustainability of income over time. Tools that model different spending scenarios and income sources can help retirees better understand how long their money might last under various conditions.
Mixing Income Streams for Security
A practical way to improve financial confidence in retirement is by combining multiple sources of income. This could include superannuation withdrawals, the Age Pension, annuities, or other investments. Blending these sources reduces reliance on any single stream and helps balance risks.
For instance, take the case of a couple, both aged 67, with $600,000 in combined super along with modest additional assets. They aspire to spend at a “comfortable” lifestyle level as defined by ASFA standards. While their savings suggest it’s possible, modelling shows only about two-thirds of scenarios allow them to maintain this level with confidence. The risk of shortfall highlights the uncertainty many retirees face.
However, if a portion of their savings—say 20%—is allocated to a guaranteed lifetime income product, the probability of sustaining their desired lifestyle increases substantially. This not only boosts confidence but also ensures that at least a modest standard of living is protected for life.
Building Confidence to Spend
Over the next decade, millions of Australians will retire, and for many, the biggest hurdle won’t be saving enough—it will be learning to spend with certainty. By recognising that retirement has two distinct goals—growing savings and converting them into steady income—retirees can better align their plans with their lifestyle ambitions.
Blending income streams, measuring risks realistically, and embracing strategies that provide certainty can make the difference between holding back out of fear and enjoying retirement to its fullest.
