One of the biggest concerns facing Australians approaching retirement is the fear of running out of money. Financial experts have even coined a term for it: FORO (Fear of Running Out). While this anxiety is understandable, research suggests that many retirees may be more financially secure than they realise. By understanding the factors that influence retirement income and longevity, Australians can make more informed decisions and enjoy their retirement with greater confidence.
Why Are So Many Australians Worried About Retirement Savings?
Retirement represents a major transition. After decades of accumulating wealth through superannuation and other investments, retirees suddenly need to start drawing on those savings. This shift can create uncertainty, especially as people grapple with questions such as:
- How long will I live?
- Will my superannuation last?
- What happens if markets fall?
- Will I have enough income to maintain my lifestyle?
Research shows that nearly half of Australians worry they will not have enough money for retirement, while many people continue working beyond their preferred retirement date because they feel financially unprepared. However, confidence often improves once people actually retire, with many retirees reporting that their savings, combined with Age Pension support, are sufficient to fund a comfortable lifestyle
The Reality: Many Retirees Die with Significant Assets Remaining
One of the most surprising findings from retirement research is that many retirees spend far less than they could afford. The Australian Treasury’s Retirement Income Review found that the typical retiree passes away with around 90% of their assessable assets still intact. This suggests that fear, rather than financial reality, often drives spending decisions in retirement.
For many Australians, this caution can lead to what has been described as a “lifestyle deficit”, where retirees unnecessarily restrict spending on travel, hobbies, family support and other experiences they worked hard to enjoy.
Four Key Factors That Determine Whether Your Retirement Savings Will Last
- Your Superannuation Balance at Retirement
The size of your retirement savings remains one of the strongest predictors of long-term financial security.
Put simply, larger retirement balances provide greater flexibility and resilience. Research indicates that retirees entering retirement with higher superannuation balances are significantly less likely to exhaust their savings, even when drawing a comfortable retirement income. Conversely, those retiring with smaller balances can be more vulnerable to market downturns and unexpected expenses
- Housing Debt and Lump Sum Withdrawals
Home ownership continues to play a critical role in retirement outcomes.
Many Australians are now entering retirement with mortgage debt or other liabilities. As a result, some retirees use substantial portions of their superannuation to repay debts before or shortly after retirement. While reducing debt can provide peace of mind, it also reduces the amount of capital available to generate retirement income.
The more money withdrawn from super to address debt obligations, the greater the pressure placed on the remaining portfolio to support future income needs.
- Investment Returns and Sequencing Risk
Not all retirement risks are created equal.
A major challenge for retirees is sequencing risk. This occurs when poor investment returns happen early in retirement while pension payments are being withdrawn. Losses at the beginning of retirement can have a much greater impact than losses occurring later because there is less capital available to recover when markets rebound
While long-term investment returns are important, retirees also need portfolios that can withstand periods of market volatility. Balancing growth opportunities with risk management is a key part of sustainable retirement planning.
- Longevity and Income for Life
Perhaps the greatest unknown is longevity.
Many Australians worry about outliving their savings because no one knows exactly how long they will live. Life expectancy continues to increase, meaning retirement savings may need to support several decades of spending.
This has led to growing interest in retirement income solutions that provide guaranteed income for life, such as lifetime annuities and innovative retirement income products. These solutions can help transfer some longevity risk away from retirees and provide greater certainty around future cash flow.
The Important Role of the Age Pension
For many retirees, the Age Pension serves as an important safety net.
Even Australians who are not initially eligible may become eligible later as they spend down their assets. The Age Pension can help reduce several key retirement risks by providing income that is not dependent on investment market performance and is indexed over time. This ongoing support can assist in managing longevity, inflation and market volatility risks.
Education and Financial Advice Build Retirement Confidence
A common theme across retirement research is that knowledge reduces anxiety.
People who engage with financial advice, understand how retirement income works and develop a clear retirement strategy tend to feel far more confident about their future. Education helps individuals separate genuine financial risks from imagined ones and empowers them to make better decisions about spending, investing and retirement timing.
Professional financial advice can help retirees create realistic spending plans, manage investment risk, optimise Age Pension entitlements and explore strategies that provide greater income certainty throughout retirement
Retirement Should Be Enjoyed, Not Feared
The fear of running out of money in retirement is real, but it is often greater than the actual risk. While uncertainties around longevity, market performance and future expenses will always exist, research suggests many Australians have more financial capacity than they realise.
