A Practical Approach to Sustainable Retirement Income
Craig Phillips, Snr Financial Adviser, Phillips Wealth Partners
When I speak to people about retirement, one of the first things I say is this: for a long time, we were taught to focus almost entirely on the balance. Build the biggest nest egg possible, get to retirement, and then work out what comes next.
That approach made sense in the past. Retirements were shorter, markets were more predictable, and many people relied on defined benefit pensions. That world has changed.
Today, retirement is lasting much longer, markets are more volatile, and most Australians are responsible for turning their own savings into an income. Because of that, the key question has shifted.
It is no longer just, “How much do I have saved?”
It is now, “Will my income last for as long as I do?”
That is a very different question, and it requires a different way of planning.
Many people I speak with are confident while markets are strong, but that confidence quickly disappears when markets fall or living costs rise. That uncertainty is exactly why income, not just balance, has become the focus of modern retirement planning.
Living Longer Changes Everything
Australians are living longer than any generation before them. That is good news, but it does come with planning challenges.
If you reach age 60 today, there is a strong chance you will live well into your late 80s. For women, it is often into the 90s. And those are just averages. Many people will live longer.
If you are part of a couple, there is a high probability that one of you will reach your 90s. That can mean a retirement lasting 30 years or more.
This is what we refer to as longevity risk. It is the risk that you live longer than expected and your money needs to last longer than planned. For many people, this is the biggest financial risk they face in retirement.
Without a plan that accounts for a long life, people either spend too cautiously out of fear, or they run the risk of running out of money later in life. Neither outcome is ideal.
Markets Do Not Behave on a Schedule
The other challenge retirees face is market uncertainty.
Over recent years, we have seen periods where shares fell sharply, and bonds did not provide the protection people expected. In some years, both fell at the same time. That has been confronting, particularly for retirees who rely on their investments to fund day‑to‑day living.
This brings us to sequencing risk. Sequencing risk is not about long‑term average returns. It is about the timing of returns.
If markets fall early in retirement, and you are withdrawing income at the same time, the impact can be significant. Your balance falls, you continue drawing income, and there is less money left invested to recover when markets improve.
This risk is highest in the first decade of retirement. A poor run of returns during this period can affect income sustainability and confidence for many years afterwards.
That is why relying entirely on market‑based investments for retirement income can feel uncomfortable for many people.
A More Practical Way to Structure Income
The good news is that retirement income strategies have evolved.
Rather than using a single approach, modern retirement planning often combines different income sources, each with a specific role.
One of the key ideas is separating essential spending from discretionary spending. Essential expenses are the non‑negotiables. Things like food, utilities, insurance, and housing costs. These expenses do not stop just because markets are having a bad year.
Discretionary spending, such as travel and lifestyle choices, can be more flexible.
To support this structure, many retirees choose to allocate part of their savings to a lifetime income stream. The purpose of this income is not growth. It is certainty.
This income can sit alongside an account‑based pension, which remains invested for growth and flexibility.
Why Lifetime Income Can Make Sense
Having a reliable income stream in place can change the way people experience retirement.
When essential expenses are covered by a dependable income source, market volatility becomes easier to manage. If markets fall, you are not forced to sell investments just to pay the bills. Your growth assets have time to recover.
Lifetime income also directly addresses longevity risk. The income continues for as long as you live, regardless of how long that is. For couples, many structures allow income to continue for the surviving partner, which can provide reassurance during an already difficult time.
This is not about putting all your money into one solution. It is about using the right tools for the right purpose.
Today’s Options Are More Flexible Than the Past
It is also worth clearing up an old perception.
In the past, lifetime income products were often rigid. Once you committed your money, access was limited. That made many people uncomfortable.
Modern solutions have evolved. Some allow for investment exposure early on, with downside protection. Others offer features that allow access to capital in certain circumstances. The aim is to provide certainty without removing all flexibility.
This makes it easier to incorporate lifetime income as part of a broader, balanced plan.
Combining Stability and Growth
A well‑structured retirement plan usually includes both stability and growth.
Your account‑based pension continues to play an important role. It provides flexibility, investment choice, and the opportunity for growth over time.
A lifetime income stream can act as the foundation, covering essential expenses and reducing reliance on market timing.
When markets perform well, your invested assets can support lifestyle goals and additional spending. When markets struggle, your core income remains intact.
This balance allows people to stay invested with greater confidence, rather than reacting emotionally to short‑term market movements.
When people know that a dependable income is coming in each month, they worry less about market headlines. They feel more comfortable spending their money. They are able to enjoy retirement, rather than constantly monitoring balances.
By addressing longevity risk, managing sequencing risk, and building reliable income into the plan, retirees can approach the future with greater certainty.
What is your plan?
There is no single solution that works for everyone. Retirement planning should always reflect your personal circumstances, goals, and preferences.
However, focusing on income sustainability rather than just account balances reflects the reality of retirement today.
A plan that combines reliable income with growth assets, used appropriately, can provide both stability and opportunity throughout retirement.
With the right structure in place, you can spend retirement focusing on life, not markets.
Disclaimer:
This information is general in nature and does not constitute personal financial advice. It does not take into account your objectives, financial situation, or needs. You should consider whether the information is appropriate to your circumstances and seek advice from a licensed financial adviser before making any retirement planning or investment decisions.