Playing it safe could be a risky bet for your retirement


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Risk aversion before retirement could be hurting Aussies' quality of life during retirement.

Seventy-five per cent of current and prospective retirees are taking a more conservative approach to retirement amid fears of an economic downturn, a new study from Allianz Retire+ has found.

"Retirees told us they are uncertain and nervous about what's ahead. They want to be financially confident and secure in retirement, and sleep easy at night," says Allianz Retire+ head of customer experience Jacqui Lennon.

avoiding risk in retirement could be costly

"The GFC was immensely damaging for many retirees, particularly those seven years either side of retirement. Some had to draw down on savings that had tumbled in value, at the worst possible time, and may never recover fully from the GFC. Retirees are worried about how their savings would fare if another GFC strikes."

While a conservative approach to retirement is understandable, this needs to be balanced against the need to generate enough return to sustain a comfortable retirement. Taking on a little more risk in the working years could be a lower-risk approach overall.

"As people live longer, a higher allocation to growth assets such as shares may be needed to generate sufficient returns to ensure their portfolio can go the distance," says Lennon.

"However, retirees are naturally concerned about equity volatility. They don't want the stress of sharemarket falls they cannot recover from."

It's a different story soon before or once in retirement. With the earning years behind them, retirees are better served changing tack to a 'safety-first' approach.

"The reality is that retirement savings for most Australians should not have 'return-maximising' as an investment goal," says Alastair Macleod of Wheelhouse Partners.

"Retirement strategies should be focused on 'risk-minimising' to deliver a specific objective or return - at least until the funding of critical expenses is met. This is classic liability-driven investing, and is designed to match future cashflows with as little risk as possible.

There are a number of options for mitigating risk during retirement.

"Anything that can increase the certainty of that return, such as relying on 'insurance' for crash protection, or pooled investment assets such as annuities should be considered and in the mix," says Macleod.

And a conservative investment approach during retirement doesn't mean frugal spending. Just the opposite, it can provide peace of mind about how much to spend, both of the income generated from investments and draw-downs, at a time when retirees' best instincts tell them to spend as little as possible.

"It's hard to change mindsets from save, save, save to spend, spend, spend in retirement, especially when you can't go back to work and know you have to make the money last for as long as you're going to live," says David Blanchett, Director of Retirement Research at Morningstar Investment Management.

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David Thornton was a journalist at Money from September 2019 to November 2021. He previously worked at Your Money, covering market news as producer of Trading Day Live. Before that, he covered business and finance news at The Constant Investor. David holds a Masters of International Relations from the University of Melbourne.