A common misconception among retiring Australians is that once they begin drawing on their superannuation to fund their lifestyle, the strategy is designed to deplete their super balance, almost to zero in line with life expectancy.

The reality is that with a pro-active investment strategy tailored to individual goals and risk objectives, retirees can maintain—if not grow—their superannuation balance while still drawing the necessary income to support their lifestyle.

A Sustainable Approach to Retirement Investing

Many retirees default to a passive investment strategy that prioritises a very low-touch, low-risk management approach, but this often results in very low returns. While this approach may feel safe, it may not generate the necessary returns to sustain a person’s financial needs over the long-term.

It’s often the case that a retiree will convert their industry or retail super balance from ‘accumulate’ to ‘pension’ mode upon drawing from their fund. These funds often appeal to retirees due to their low fees, but what is often overlooked is their lack of active management. Instead of ensuring a portfolio grows over time, the strategy is typically designed to exhaust at life expectancy. Why?

Firstly, these funds provide a ‘cookie cutter’ solution, therefore, the investor’s person needs are not considered. This means that a retiree may have a higher cash flow need that what the fund’s investments can generate.

Secondly, if/when assets are sold to fund the short fall, no consideration is given to whether the timing is right to sell, or which assets should be sold. It just happens.

Instead, a well-structured investment strategy can generate cash flow to meet daily needs while preserving and potentially growing the underlying balance. This is achieved through a diversified investment approach that balances both income-generating assets and those that provide long-term capital appreciation.

The key elements of this strategy include:

(1) Cash Flow Generation – A well-structured portfolio includes income-producing investments such as dividends from equities, interest from fixed income securities, and distributions from property or infrastructure assets. These sources of cash flow can cover living expenses without the need to continually sell assets.

(2) Growth Exposure – While it may feel counterintuitive for retirees to maintain exposure to growth assets such as equities, this is crucial to ensuring their wealth continues to grow over time. Growth assets help offset the impact of inflation, which erodes purchasing power if the portfolio is too conservatively positioned.

Additionally, many family groups are focused on generational wealth transfer and are less concerned with maintaining an investment strategy solely for super fund retirement purposes.

(3) Strategic Asset Allocation – A well-balanced portfolio is not a set-and-forget strategy. Active management ensures that exposure to different asset classes is regularly reviewed and adjusted in response to economic conditions, market opportunities, and personal circumstances.

The Impact of Inflation and Longevity

One of the greatest risks to retirees is inflation. A portfolio that is too defensively positioned in cash or fixed income alone may struggle to keep up with rising living costs. Historically, domestic/global equity markets have delivered higher long-term returns than cash and bonds, making them an essential component of a retirement investment strategy.

Additionally, longevity risk—the possibility of outliving one’s retirement savings—is another critical factor to consider. The longer a retiree lives, the more their assets need to work for them. By ensuring part of the portfolio remains invested in assets with long-term growth potential, retirees can mitigate the risk of their wealth eroding over time.

The Outcome: Preservation and Growth

With a carefully constructed and actively managed investment strategy, a retiree’s superannuation balance should, at the very least, retain its value and in many cases continue to grow. The combination of sustainable cash flow, inflation protection, and longevity planning ensures that retirees can enjoy financial security throughout their lifetime, without the fear of running out of money.

At Hewison Private Wealth, we take a personalised approach to retirement planning. Every client has unique financial goals, lifestyle aspirations, and risk tolerances, which is why a tailored strategy is essential.

For high-net-worth clients, it’s common for a self-managed super fund to be used, given the exceptional level of control and flexibility they provide to manage a bespoke investment strategy. Currently, we manage more than 800 SMSF across our client base.

If you’re concerned about your retirement strategy or would like to explore how an active investment approach can secure your financial future, we’re here to help.