In this guide
Unlike previous generations who worked, paid off a home then retired on the Age Pension, most of today’s retirees draw at least part of their income from a superannuation pension.
That’s made retirement more comfortable for many older Australians, but the rewards come with new risks. Most retirees with money in superannuation pension products are in account-based pensions where they carry full responsibility for market risk.
With 25 to 30 years of retirement to look forward to, it’s to be expected that there will be a bear market or three along the way. But it’s the timing of big market falls that could determine whether you end your days in luxury or just skimping by.
The twin risks of pension planning
If you’re hoping to retire in the next few years, it’s important to plan how you will manage the interplay of sequencing risk and longevity risk.
Definitions
- Sequencing risk refers to the pattern of investment returns and the order in which you receive them. The timing of a market downturn in the early years of retirement will be more costly than a downturn of a similar magnitude late in retirement. For a worked example, see SuperGuide article How sequencing risk affects your retirement.
- Longevity risk refers to the possibility that you will outlive your retirement savings. Learn more about life expectancy.
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