Investing to make your pension last


When thinking about risks associated with pensions, most people automatically think of the risk of losing money. However, the prospect of outliving your pension—known as longevity risk—is also worth considering.

What is longevity risk?

Put simply, longevity risk is the risk that you will outlive your retirement savings and have to rely on safety nets such as the Age Pension.

The average 65 year-old retiree could spend around 21 years in retirement.1

Managing longevity risk

A financial adviser can help you manage longevity risk with some simple strategies. These may include:

  • preparing a realistic budget to help you live within your means
  • considering ways to maximise your Age Pension entitlement, and/or
  • considering using some of your retirement savings to buy an ‘annuity’, which is a type of product that provides regular pension payments for a fixed term or for life.

As part of managing risk, it’s also important to review your investment strategy—having a mix of growth and defensive assets can help you achieve a balance between protecting your capital against inflation and short-term market fluctuations.

Should you invest more conservatively in retirement?

There’s a popular belief that you should invest conservatively in retirement to help protect the money you have. 

However, it’s also prudent to consider your particular income requirements, as well as factoring in an investment strategy to manage the effects of inflation.

Your income requirements

When you consider your income requirements for a comfortable retirement, 'playing it safe' may turn out to be a risky strategy, as it may not generate the level of income you need to live comfortably for the rest of your life. This means that you may need to withdraw some of your capital earlier than planned to meet your desired level of income.

The effects of inflation

By investing conservatively you also run the risk that your returns don’t keep up with inflation, which can potentially affect how long your retirement savings last.

That’s why it’s important to consider investment strategies that have the potential to grow above inflation over time, particularly if your pension is going to stay invested for many years.

So does this mean you should chase high returns by pursuing a more aggressive investment strategy?

Not necessarily. Investing all your hard-earned retirement savings in an aggressive strategy, such as international shares, can be just as risky as a highly-conservative strategy.

Growth assets like shares generally have the potential for higher returns, but are also generally subject to higher market volatility, which can have a negative impact on your balance in the short term.

A diversified approach

You’ve heard the advice countless times—“don’t put all your eggs in one basket”. The same approach (known as diversification) can help you manage longevity risk in your pension.

Diversification simply means investing in a mix of investment types or asset classes.

This approach is based on the experience that different types of investments tend to perform differently from one another at various times. If you diversify your investment portfolio, any poor performance in one of your investments may be offset by the better performing investments in your portfolio.

You can diversify your portfolio by choosing investments across a range of growth and defensive asset classes, e.g. shares, property, fixed interest and cash.

All of our Pre-Mixed investment options are diversified across a range of asset classes. Sector investment options are less diversified and are designed to be combined with other investments to build a diversified portfolio—they’re not intended to be used in isolation.

Get advice

UniSuper Advice can help with strategies to manage market risk, while giving your growth assets time to grow.

Find out more about UniSuper Advice, or call on 1800 UADVICE (1800 823 842).

1Australian Institute of Health and Welfare, Trends in life expectancy