Why These Financial Risks Matter Together
- Retirees often don’t have as much time to recover from adverse investment or regulatory changes as younger people.
- Inflation and increasing costs, especially for aged care and health, amplify other risks.
- Longevity means even modest under-planning could leave someone with inadequate resources in later years.
- Regulatory changes can shift cost burdens or benefits unexpectedly.
Understanding the various financial risks faced by retirees is crucial for retirees or those approaching retirement. By definition, Financial risks can lead to unforeseen challenges, so awareness of these financial risks helps retirees to make informed decisions and safeguard their financial future.
Below are significant risks, their relevance (with supporting evidence), and how they can erode retirement well-being.
| Risk | What It Means / Why It Matters | Evidence / Data in Australia |
| 1. Investment & Sequence Risk | Poor investment returns (especially early in retirement), volatility, market downturns, or the wrong mix of assets can reduce the capital or income generating capability of retirement savings. If the portfolio suffers losses early, recovering is harder (“sequence risk”) and can shorten the lifespan of savings. | Colonial First State warns retirees with a “set-and-forget” approach to super may risk depleting savings prematurely, particularly when markets fall early in retirement. (The Australian) |
| 2. Inflation & Cost of Living Increases | Inflation reduces purchasing power; cost increases in essentials (food, utilities, healthcare) hit retirees hard because many are on fixed incomes or low growth assets. If inflation is higher than assumed, retirees may consume capital just to maintain standard of living. | Australia’s CPI was about 2.1 % annually to the June 2025 quarter; trimmed mean inflation (a measure of underlying inflation) around 2.7 %. Some service inflation (rent, insurance) is higher. (Australian Bureau of Statistics) Also, in a global retirement survey, 49 % of Australians cited inflation / cost of living among top 3 concerns about retirement readiness. (SSGA) |
| 3. Time Risk and Longevity (Life Expectancy Risk) | Living longer than expected (“outliving savings”) is a major risk. Savings need to cover possibly several decades in retirement. Longevity means more years of income drawdowns, more years of exposure to inflation, health costs, etc. Also, work capacity may decline with age, limiting ability to supplement income. | ABS data: life expectancy at birth is ~81.1 years for males, ~85.1 for females. Many live beyond those averages. (Challenger) Actuaries Institute notes that because of demographic shifts and health improvements, longevity assumptions must be reviewed, and retirees need to plan for longer. (Actuaries Australia) |
| 4. Unplanned or Escalating Expenses | Health shocks, aged care, unexpected maintenance, home modifications, or major one-off expenses (e.g. replacing big appliances, vehicles, emergencies) can throw plans off. Costs often go up with age (healthcare, care services, living expenses). Also, aged care costs are being reformed. | Out-of-pocket health costs remain significant; even with Medicare, OOP costs are ~14 % of health expenditure. (ScienceDirect) Also, upcoming changes in aged care legislation: new Aged Care Act 2024 effective 1 Nov 2025, changes to support home care, means testing, and how aged care fees and contributions are calculated. (My Aged Care) Also, aged care “hotelling” supplement (services like cleaning, meals etc.) will increase; daily care costs split etc. (Department of Health Australia) |
| 5. Legislative / Regulatory Risk | Laws governing superannuation, pension eligibility, aged care, taxation, means testing, etc. can change — sometimes reducing benefits, increasing costs, or shifting responsibility. Retirees are sensitive to changes in policy, subsidies or support programs. Sudden regulatory change may force rethinking of plans. | The Aged Care Act 2024 is replacing old legislation, reforming funding, costing, and how home care / residential care operates from 1 Nov 2025. (Wikipedia) Also, aged care fee changes effective from 1 July 2025, including how much providers deduct and refund, and how contributions from retirees are assessed. (Retirement Essentials) |
| 6. Time Horizon for Use of Savings (Time / Withdrawal Risk) | How long retirement lasts, how quickly one draws down savings, and the timing of expenses matter. Drawing too much too early can exhaust assets, or leave little for later years (especially when income sources decline). Conversely, drawing too little may lower quality of life unnecessarily. Also, when funds are liquid vs illiquid matters. | Treasury’s “Retirement Phase of Superannuation” discussion paper notes many retirees default to minimum drawdown rates, perhaps out of concern, leading to overly conservative drawdowns, which might leave unused funds but risk under-spending earlier when quality of life could be higher. (Treasury) Also, market losses early in retirement (sequence risk) affect long-term outcomes. (The Australian) |
Strategies to Mitigate or Manage Financial Risks When Preparing a Retirement Plan
A financial planner will take financial risks into consideration when developing retirement strategies and this ensures a more resilient financial plan, that can withstand various market fluctuations and economic changes
| Strategy | How It Helps | Practical Steps / Examples for Australia |
| Maintain diversified investment portfolios with appropriate asset allocation | Helps manage volatility, smooth returns, capture inflation protection, avoid too much downside early in retirement. | Use a mix of growth (equities, property) and defensive (bonds, cash, inflation-linked) assets. Periodically rebalance. Avoid moving entirely to conservative assets too early, but consider gradually shifting to lower risk as one ages. Discuss options with super funds; see if they have “lifecycle” or “glide path” options. |
| Plan for realistic inflation | Ensures income/withdrawals grow or at least maintain purchasing power, not just in headline CPI but service / health cost inflation. | Assumptions in plans should use conservative inflation estimates (e.g. 2-3 %, possibly more for health/aged care). Include inflation-linked income streams where available. Ensure Age Pension increases or pensions / annuities are indexed (if possible). Maintain some exposure to growth assets. |
| Longevity planning & conservative withdrawal schedules | Helps ensure savings last over potentially long retirement spans. | Use actuarial tables / tools to estimate likely lifespan; plan for worst reasonably likely case. Use safe withdrawal rates (e.g. lower percentages early, rising later, or constant percentage but adjusted if assets or markets suffer). Consider products that provide income for life, like lifetime annuities, or deferred annuities. Supplement with super + Age Pension carefully. |
| Prepare for health, aged care, and unplanned expenses | Avoid being caught short by large costs; minimize risk of having to draw large sums suddenly from strained resources. | Get good insurance where appropriate. Maintain an emergency fund or buffer. Plan ahead for aged care: understand the means test, what fees you will pay, accommodation costs, etc. Review home maintenance, modifications. Budget for likely rising healthcare costs. Know upcoming legislation (e.g. from Nov 2025). |
| Stay aware of regulatory / legislative changes | Helps avoid surprises; seize opportunities; adjust planning accordingly. | Monitor government policy, aged care reforms, changes in superannuation rules, taxation, pension eligibility. Use advisors who stay current. Where possible, structure savings in ways that are adaptive (e.g. flexible vehicles, voluntaries super contributions, combinations of income streams). Consider impact of means testing and anticipate future changes. |
| Engage professional advice, scenario stress-testing | Expert advice can help avoid biases, spot hidden risks, test different scenarios (bad markets, inflation shock, longevity). | Use a qualified financial planner or retirement income specialist. Run multiple “what if” simulations: e.g. what if inflation 5 % for 5 years, or investment returns low for first 5 years, or aged care cost rises. Set your withdrawal / income plan accordingly. Review plan periodically (every few years or after big life events). |
| Phasing or delaying retirement, part-time work as buffer | Extends savings, reduces time drawing down; can replenish savings, delay drawdowns. | Many Australians retire between 62-65 on average, but working part-time beyond preservation / pension age helps. If health allows, phased retirement or consulting/private work can provide income or reduce drawdowns. Also delays stress on public pension. |
Planning Ahead: What Retirees Should Do
To ensure savings last and risks are managed, retirees should treat planning as ongoing, not a one-off. Here are suggested steps:
- Set Goals and Budget Assumptions
- Determine target lifestyle: “essential” vs “desired” expenses, homeownership status, travel, etc.
- Estimate how long retirement could last (e.g. until age 90 or beyond).
- Include inflation assumptions and likely cost increases (health, aged care, utilities).
- Map Income Sources
- Superannuation account balances; expected returns under different risk mixes.
- Age Pension entitlements; changes in means / asset tests.
- Other savings, investments, property, annuities.
- Stress Test Plans
- Run scenarios: low returns, high inflation, health shocks, legislative cost increases, etc.
- Decide Drawdown Strategy
- A safe withdrawal rate depending on portfolio size, risk tolerance, expected lifespan.
- Consider flexible drawdown (reduce when markets are down).
- Consider Insurance and Reserves
- Health insurance, home and contents, long-term care or aged care insurance where possible / relevant.
- Keep emergency reserves / liquidity for unexpected costs.
- Stay Flexible and Review Regularly
- Update plan every few years or after life changes (health, family, wealth).
- Be ready to adjust expenses, asset allocation, retirement timing.
- Seek Professional Financial Advice
- Ideally a planner experienced with retirees, superannuation rules, aged care.
- Use advice to understand options (annuities, income streams, legacy vs consumption trade-offs).
Recent Legislative / Regulatory Developments to Watch
- Aged Care Act 2024: Comes into force 1 November 2025. Introduces new rights, funding arrangements, means testing changes. (Wikipedia)
- Support at Home Program: Replaces Home Care Packages Program; different cost / contribution arrangements for home care services. (My Aged Care)
- Changes to aged care funding, including “hotelling supplement” (services like cleaning, catering) increases and changes to contributions from residents. (Department of Health Australia)
These reforms affect how much retirees will pay, how means are assessed, and what services or support they receive. Thus planning before and after these changes is essential.
Putting It All Together: Ensuring Retirement Savings Last
Here are best-practice principles for making savings go the distance, preserving quality of life, and reducing risk:
- Base planning on conservative assumptions — assume modest investment returns, moderate inflation, possible market downturns.
- Create a buffer early in retirement — perhaps by delaying full retirement, keeping part of the portfolio in safer assets during early years, or keeping cash reserves.
- Income floor & lifestyle ceiling — ensure you have a base income to cover essentials (utilities, housing, healthcare) that is secure (Age Pension, annuity, safe investments), then plan discretionary spending above that.
- Use indexed or inflation linked income streams where possible to protect purchasing power.
- Manage portfolio sequence risk by avoiding large exposure to very volatile assets just when you most need stability. The first 5-10 years of retirement are especially critical.
- Understand fees, tax, and means testing — high fees or bad tax/treatment of assets can erode savings; means tests for Age Pension or aged care can reduce net benefits.
- Plan for aged care early — because those costs can be steep and unpredictable; know your rights, what government covers, what you will need to pay.
Summary / Key Takeaways
- Retirees in Australia face multiple interacting risks: investment risk, inflation, living longer than expected, unplanned health or aged care costs, and legislative changes.
- Data shows inflation remains a concern; aged care reforms are imminent; many retirees worry about running out of money.
- The best protection is proactive, realistic, diversified planning; professional advice; regular review; scenario testing.
- Delaying retirement or working part-time, using income sources wisely, and managing drawdowns sensibly can make a big difference.
Conclusion
Retiring comfortably in Australia today (and for those coming up to retirement) isn’t just about accumulating a large superannuation balance. It’s also about managing risks: ensuring your savings are invested wisely; planning for inflation and rising costs; expecting to live longer; anticipating unplanned expenses; staying attuned to regulatory changes; and ensuring strategies for how and when to spend those savings.
None of this eliminates risk entirely, but doing this work ahead of time—and ideally with skilled, qualified professional advice—makes it far more likely that retirement savings will last for the long haul, giving both safety and freedom in later years.
References
- Challenger, “Understanding longevity risk in retirement,” citing ABS life expectancy and data on rising cost-of-living impact. (Challenger)
- Actuaries Institute, “Life Expectancy Headlines Don’t Tell the Whole Story for Retirement Planning.” (Actuaries Australia)
- State Street Global Advisors, “2025 Global Retirement Reality Report: Australia Snapshot.” (SSGA)
- ABS, “Consumer Price Index, Australia, June Quarter 2025.” (Australian Bureau of Statistics)
- TradingEconomics / RBA data, “Inflation Expectations” and related CPI data. (Trading Economics)
- My Aged Care & Department of Health, Government of Australia, “Upcoming changes to aged care fees / funding / Support at Home program / New Aged Care Act.” (My Aged Care)
- Retirement Essentials, “Aged care fee changes in 2025: What you need to know.” (Retirement Essentials)
- Treasury, “Retirement Phase of Superannuation” discussion paper. (Treasury)
- Out-of-Pocket health cost data from recent studies. (ScienceDirect)
