How to manage
financial risks
in retirement

Here are some key financial risks that you may experience throughout your retirement journey, and some tips to help you manage them.

Navigating the fluctuations in financial markets is a part of investing. This means that from time to time your balance will go down instead of up.  

Tips to help minimise the impact:   

• Choose your investment strategy by considering your personal goals and risk appetite, then stick with it. This can help provide stability during market changes.  
• Diversifying – or spreading out – your retirement savings across different asset classes (like shares, property and bonds) means that not all your investments are affected by market fluctuations at the same time. Our pre-mixed investment options invest in combinations of asset classes with varying levels of risk. 
• Be patient and maintain a long-term perspective on your investment strategy. It might be tempting to switch investment options during a market downturn in search of a better outcome, but trying to time the market can be as random as flipping a coin.  
• Consider investing a portion of your savings in a product like CPIplus, a low-risk investment option available exclusively to Hostplus Pension members. It aims to deliver a predetermined return above the consumer price index (CPI) each year, giving retirees greater peace of mind and more certainty over their investment returns. Combined with other investments, it can provide a balance of stability and growth. Click here for more information about CPIplus, including terms and conditions. 

Transitioning from building your super to withdrawing it in retirement can be tricky. A large market downturn early in your retirement can significantly reduce your retirement savings, making recovery difficult even if the market improves later. This is known as sequencing risk, where early losses in your retirement can shorten the lifespan of your savings more than similar losses later when your balance is lower.

Tips to help minimise the impact:  

• Higher-risk investments can provide higher returns but are more volatile and susceptible to short-term losses. This is why you may want to consider choosing a lower-risk investment option as you near and enter retirement. If you’re approaching retirement and want to tailor your investment strategy in this way but prefer to be more hands-off, our Hostplus Life investment option automatically adjusts your investment risk based on your age.  
• Again, consider splitting your balance across different investment options or asset classes with varying levels of risk. Putting some of your nest egg into defensive options, such as cash or fixed interest, can reduce the impact of a market downturn. 
• Keep a portion of your balance in a 'cash bucket' and withdraw payments from that bucket only. This will reduce the need to tap into your growth investments during a market downturn, giving them time to recover.  

Longevity risk is the possibility of outliving your savings, leading to financial insecurity. Australians are living longer¹, which means their savings need to stretch further.  

Tips to help minimise the impact: 

• Remember that most Australians will be eligible for the government Age Pension at some stage throughout retirement. It can provide an important safety net, reducing reliance on personal savings and helping them last longer. So, it’s a good idea to understand how it applies to you. 
• If you’ve retired, a pension account, like Hostplus Pension, can help manage longevity risk by balancing your income needs with an appropriate investment strategy. It converts your super into a steady, tax-free income, allows you to adjust income payments as needed, and keeps the rest of your money invested. This means your money has the potential to keep growing while it’s still invested, helping it to last longer.  
• Purchasing an annuity can help manage this risk by turning your super or other savings into guaranteed income in retirement. However, it typically offers less flexibility than other retirement products. Once you buy an annuity, you usually can’t change your regular income payments or make lump sum withdrawals. Still, an annuity can provide peace of mind through guaranteed income and can be combined with more flexible products, like pension accounts, to help create a balanced retirement strategy. Speak to one of our advisers to see if this approach is right for you. 

There’s a risk that inflation will reduce the spending power of your income during retirement as the costs of goods and services rise.   

Tips to help minimise the impact:   

• As mentioned earlier, CPIplus is a low-risk investment option that aims to deliver a predetermined return above the consumer price index each year, giving you more certainty in retirement.  
• Being proactive with your budgeting and spending habits can help you keep up with essential household costs.  
• Much like managing market risks, adopting a balanced investment strategy can help manage inflation risk. Including growth investments, such as shares and property, in your portfolio can help generate long-term returns. A well-considered investment strategy can help ensure your savings maintain their purchasing power over time while managing market volatility. 

Balancing spending is another challenge. Overspending can deplete your savings, leaving you financially vulnerable later in life. On the other hand, underspending can result in an overly thrifty lifestyle, depriving you of enjoyment in your golden years. Striking the right balance is key to maximising your financial security and happiness in retirement.  

Tips to help minimise the impact:  

• Putting together a budget can help you strike a balance between having financial security in retirement and enjoying the lifestyle you want. The Moneysmart website has lots of handy resources to guide you.  
• Our Super and Retirement Projection Calculator can help you plan your retirement spending by estimating how much super you’ll have and how long it will last given a certain level of spending. It can also show you how key factors – like your retirement age, super contributions, and investment choices – can influence the longevity of your savings, helping you better manage the risk of running out of money or spending too cautiously.  

Out-of-pocket expenses for home maintenance, health care and emergencies are some of the biggest challenges that retirees face. Being prepared for any retirement surprises will help give you the ability to recover from any financial shocks.  

Tips to help minimise the impact:   

• Building an emergency bucket of savings that you can tap into when needed can provide some reassurance and security. Budgeting and tracking your expenses can be a helpful way to prioritise how to allocate funds to this bucket.  
• Review insurance and health-care plans regularly to make sure you have the right coverage to meet your needs as they change over time. This can help you prepare for emergencies and avoid significant out-of-pocket expenses should the unexpected happen. 

We can’t predict the future, but you can help take the stress out of the unknown by getting informed advice. We have a range of financial advice tools and services. From our DIY online platform SuperSmart, to phone-based advice and more comprehensive face-to-face planning, we’re here to help you take control of your future.   

Contact us on 1300 303 188, email us or book a callback today.