Page 5 - Wealth-Adviser-Issue-119 (FWP)

ISSUE 119
SEPTEMBER 2025

Australian advisers increasingly employ “dynamic spending”
approaches: starting conservatively and relaxing withdrawals in

good years, or accepting temporary reductions during downturns.
This not only preserves capital but supports psychological

comfort and household wellbeing throughout retirement.

much more pronounced. Australians are living longer and spending reviews. Local features, such as franking credits
retirement can now stretch 30 years or more. Outliving your for Australian shares and property income, can further boost
savings is a growing risk. There is greater complexity, too; real returns and lower withdrawal risk.
housing needs, aged health care, family support, and inter- The SuperGuide review of rules of thumb highlights the
national volatility all add unpredictable strains to retirement importance of strategic flexibility, rather than rigid adher-
cash flow. ence, especially when faced with severe market downturns
Recent surveys from the 2025 State Street Global Advisors or unexpected expenses.
Australia Snapshot reinforce this changing mood: Australians
express persistent concerns about rising health costs, the ade- Adviser Wisdom and Behavioural Realities: The
quacy of superannuation, and the implications of inflation on Psychological Side of Spending
fixed or semi-fixed retirement budgets, even as they express Even the best technical plan needs to be adapted to peo-
greater awareness of investment diversification. ple’s lived experiences and psychological responses. Bengen
External studies from the Australian Bureau of Statistics himself emphasised that everyone is different and your
reveal that, as of 2025, both life expectancy and the prob- retirement portfolio and spending should be customised to
ability of significant out-of-pocket health and aged care suit you. This point resonates strongly in Australian prac-
costs continue to increase, creating further uncertainty for tice, where advisers routinely tailor strategies for different
retirees planning decades into the future. risk appetites, retirement goals, and family circumstances.
Behavioural finance research in Australia and abroad
New Strategies in Practice: Supercharging and has consistently found that retirees are often so concerned
Diversifying Withdrawals about running out of money that they underspend, settling
Bill Bengen’s latest research advocates for a more dy- for a lower lifestyle early in retirement while living with
namic, diversified approach. Rather than sticking to a 50% unnecessary anxiety. SuperGuide’s reporting on the confi-
equities, 50% bonds portfolio, he found that by expanding dence gap demonstrates that rules of thumb can inadver-
the mix to include micro, small and midcap stocks, as well tently encourage over-cautious withdrawal, contributing to
as international shares, retirees could improve their safe a reluctance to draw down principal.
withdrawal rate. Instead of using a 50% equities/50% bonds State Street’s 2025 findings show that many Australians
portfolio, he increased the number of assets and created a worry about both longevity and market shocks, creating
more diversified portfolio – adding micro, small and midcap a strong case for regular adviser conversations, scenario
stocks. The result? Bengen’s revised “safe” rate is now 4.7%, testing, and flexible withdrawal frameworks—rather than
and he suggests that 5.25-5.5% may be even more realistic “set and forget” spending rules. As Morningstar’s adviser
for many retirees. research concludes, despite the perception that successful
Australian-focused research echoes the value of diver- investors nimbly navigate each zig and zag in the market,
sification. For instance, Morningstar Australia’s analysis on the evidence suggests otherwise. Instead, methodical, rules-
retirement withdrawal strategies notes that a lower starting based adjustments outperform knee-jerk reactions or static
withdrawal rate doesn’t always mean living on less. The strategies.
latest research on sustainable withdrawals offers flexibility. Australian advisers increasingly employ “dynamic
Retirees can blend portfolio withdrawals with access to the spending” approaches: starting conservatively and relaxing
Age Pension, annuities, property downsizing, or systematic withdrawals in good years, or accepting temporary reduc-
drawing on superannuation. tions during downturns. This not only preserves capital but
Findex’s guidance for pre-retirement Australians supports psychological comfort and household wellbeing
recommends careful use of cash buckets and disciplined throughout retirement.

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