Super is catching up, but ageing is a triple-threat

Whilst a lots of these comments are correct, one is not. The whole super system was designed to accumulate then deaccumulate ie be withdrawn from the super environment before age 100. This is why the minimum withdrawal % increases with age. That doesn't mean the money has to be spent, just that it is withdrawn from the concessionally taxed super pension environment. Of course, with Costello's rule change you can now keep it in accumulation phase forever (just not tax-free).

That’s a good point, OldButSane. Let me expand somewhat on why I referred to the “childish dichotomy of the accumulate-then-spend model”.

My main concerns are that focussing too heavily on drawing down super can have the perverse effect of limiting the ability to make further drawdowns in the future – basically, if you spend it, it’s gone. Investing too conservatively in the name of reducing risk (usually meaning short term volatility) has a similar effect. Both can be regarded as increasing the risk that money will not be available at some point in the future when you really need it – and that is the risk that matters, although it has to be balanced against the need to live a fulfilling life.

Here’s a simple example of the danger of excessive conservatism: Pat and Kim both started an account-based pension on 1-Jul-2000, aged 65, with the inflation-adjusted equivalent of 1 million 2025 dollars – assuming 4% (wages) inflation for indexation purposes. Pat puts all her super into CBA shares. Kim puts his into “safe” term deposits. Each draws the statutory minimum percentage each year.

Fast forward to 1-July-2025. Pat, now 90, has $2 million in her super fund, from which she must draw $220,000 in 2025-26. She is living very comfortably, will never need the age pension, and has a great deal of financial resilience should thing go seriously pear-shaped (as they can, even in your 90s).
Kim is not doing so well. He has $200,000 left in super from which he will draw $22,000 in 2025, and he is on a full age pension of about $30,000. He might be ok financially, provided his needs are modest and nothing really serious goes wrong.

To your point: I think you are right, that the drawdown rules were intended to encourage people to consume their super during life, but this example shows that the success (if you can call it that) of this depends very much on investment returns.

Treasury and the government love to remind us that super is a tax-advantaged environment (debatable, but that’s for another day), from which they derive a moralistic justification for the forced drawdowns.

Let’s suppose that Pat actually withdrew all her super in June 2024, reinvesting it in CBA shares. During 2025-26 she would earn approximately $80,000 in dividends plus franking credits, on which the income tax would be about $16,000.

Treasury, using the primitive logic of their Tax Expenditure and Insights Statement (primitive because it ignores consequential effects, among other logical problems) would see Pat’s keeping her money in super as incurring a cost of $16,000 per year. But that’s not a cash cost. At best it’s an opportunity cost. Superannuation is self-funding: it doesn’t actually cost the government anything.

Contrast that with Kim’s situation, where his age pension is a direct cash cost to the public purse of about $30,000 per year (plus the cost of other benefits which accrue to age pensioners).

Now, put Pat back into super. The system allows her to have $2 million in her account. Why is Kim also not allowed to have $2 million? Is it really appropriate that he be punished because he made a poor investment choice 25 years ago? If Uncle Bill leaves him a house worth a million dollars, why can’t Kim put that million into super (even at age 90), thereby saving the government $30,000 per year in age pension, while running up an opportunity cost of about $3,000 tax saved if he continues to invest in term deposits? He'll still be well behind Pat.

As a further example, without going into details: forcing withdrawals for anyone on a part age pension limited by the asset test (e.g. Kim in earlier years before 2025) is just nuts because it directly increases the age pension cost for no benefit to anybody.

All of this is perhaps a long-winded way of saying that the regulatory framework around the most basic part of superannuation in retirement is poorly thought through, and it’s counter-productive or unfair in various ways. These arguments could easily have been mapped out 30 years ago.

There is no requirement to use your Superannuation for retirement.

Once you reach preservation age and meet a condition of release, you're free to do with your Superannuation as you please.

"Pat puts all her super into CBA shares. Kim puts his into “safe” term deposits. Each draws the statutory minimum percentage each year.":

Each must withdraw, neither must spend.

Pat withdraws mostly fund earnings. Kim withdraws mostly fund capital.

Pat spends all withdrawals resulting in a ~5% chance of capital depletion within 30 years.

Kim reinvests the inflationary part of withdrawals, spending the real part and depletes capital in:
= NPER((1 + 5%) / (1 + 3%) - 1, 40000, -1000000, 0)
= 34.5 years.

Kim is both over capitalised and under capitalised - in the "SourestSpot".
Too much capital to receive Age Pension Asset Test and insufficient capital to return more than the Age Pension.

Nothing new here. The Retirement Income Covenant has been in place for several years now but many super funds have merely paid lip service to it and the government has been lax with follow up action.

Instead of large super funds providing holistic advice on retirement planning, many including my own fund QSuper have moved further away from that goal. Once they had in house advisors and a logical conduit to discuss retirement planning now it is outsourced I suspect due to the government mandated requirements of advisors and a CYA mentality. We don’t need more ads with blue monsters running around paid for by members - we need better, more affordable advice.

Aged care costs have gone through the roof under this government and will no doubt contribute to retirees fear of spending during the de-accumulating phase

Agree 100%. Very few super funds have branches where members can have face to face contact with their fund. Instead they rely on call centres and online processes to deal with members.
Given CBA’s admission that up to $1 billion in loans were approved using AI generated documents it is only a matter of time before super funds face the same problem.
To reduce the risk of elder abuse APRA should require all retail and industry funds to have branches where members can get advice and transact business in all capital cities.

Hi Bruce,

I take your other points.

But re: "Given CBA’s admission that up to $1 billion in loans were approved using AI generated documents it is only a matter of time before super funds face the same problem." - I don't follow.

Super funds don't issue loans.

Someone could conceivably create a fake super account and then contribute real money to it ... but how far would it get them? They'd risk losing the money or having legal action taken against them before they got a payout ... and the payout would only be about as much as they'd get if they just put the money into their own super. So there's not a lot of upside.

Are you suggesting that AI pretends to be someone they're not, and withdraws money from their capital? I think that would run into multi-factor authentication problems, unless they trick the super fund holder as well ...

Don't forget that Rural and Regional Australians have that same need for retirement advice as those living in capital cities. Please make sure the super reps have wheels ??

Dear Lachlan
My point regarding the potential for AI fraud is two fold. Firstly Super Funds seem to ignore the KYC (know your customer) requirements of other financial institutions so it is easy to use AI to pass their verification checks.
Secondly, a family member can use AI generated documents to change an elderly member’s details and transfer the balance out of their account.
My point was that if AI generated documents could be used to defraud Australia’s leading bank, relying on call centres and online verification poses risks for superannuation funds. Risks which can be avoided by having a branch network and implementing KYC practices.

Agreed.

This essentially what the services Australia offices do via a FISO, there needs to be many more if these offices for face to face appointments, and a reduction in the call centre approach with their massive wait times . Additionally, the funds need to provide members support services that meet the members needs not just their perceived needs.

Bec Wilson’s Super Fund tick scheme in concert with Chant West is heading in the right direction. Building these requirements into fund regulations and registration arrangements would boost your covenant strength. I am hoping it doesn’t go the way of the heart health tick scheme, in time.

Well done, Errol
'We don’t need more ads with blue monsters running around paid for by members - we need better' - full stop!
Will the cost of the 'Blue Monster' be revealed? Send in the auditors.

People, people… if you only knew how bad this looks to those of us with experience in other industries.

If the government has to get involved and use “inclusive” language like “covenant” just so the industry isn’t embarrassed, it’s because the industry has… failed. Not failed themselves, I’m sure they got their cut. They have failed Australia, by not being prepared.

Why has this occurred? Resources? No, It is well resourced. Intellect? That level of wealth attracts well educated people - many of those will be reasonably intelligent. However, for any industry with funds and smarts to NOT KNOW, after 30 years, how a key structure of their own industry should be architected (I.e. the retirement structure), is quite simply… negligent.

The language of this and countless similar articles, convinces me that this industry is self designed as an investment industry, NOT a retirement industry.

Words like “threat” have been used by even more countless rent seekers who once their naked ambitions become obvious and their rent comes under threat, start agitating for a way to keep getting their cut.

It’s YOUR industry - pull your bloody socks up and fix it.

Bruce had a good comment that included 'face to face contact with their fund'.
perhaps shopping centre small pop-up style providing advice etc. Instead of wasting members money on TV etc advertising. Or something similar to that.

I'm not sure that listing three things really is much in the way of analysis. We all know that 1. funding retirement with income, 2. aged care, and 3. generational wealth transfer are all big issues or trends. The question is what actions are needed (and, indeed, if the third one is even a problem, and if so who it's a problem for).

My interest is in the first one, funding retirement.

The article says:

"Knowing how much is ‘enough’ is highly personal and a difficult question to answer. Getting it wrong can have significant consequences. Risks from rising inflation, volatile markets, generating cash flows, and financing a long life are challenges retirees have to navigate when securing an income for the long-term. Addressing these challenges requires a shift in mindset, a stronger focus on cash-flow certainty, and most likely, professional financial advice."

Fair enough. But it's not like we don't have ideas about how to finance retirement. There's a large literature on it, from the William Bengen 4% rule to guardrail strategies to dynamic withdrawal rates.

The problem is that the large literature on financing retirement is written from the perspective of self-funding retirement, in a framework where there aren't minimum draw-down rates, and is largely written for US audiences.

It's not really a good match with the superannuation system, where the ASFA idea for example is pretty much to accumulate the target amount in super ($630K for a single), then withdraw the comfortable budget amount of $55K a year (for a single). The "comfortable" retirement budget isn't all that comfortable - it envisages one overseas trip every seven years, for example. As the super capital runs out, you fall back on the age pension - at first partially and then fully.

The ASFA approach doesn't really do a lot to manage capital through market upturns or downturns, address sequence risk, or otherwise ensure longevity of your capital. It just says, in effect, keep on rocking, and keep withdrawing the comfortable retirement budget each year (they'll adjust it for inflation) until it runs out.

I'm not sure that anyone I've seen has any really good advice on this. Personally I'd imagine the strategy would be to accumulate a couple of hundred thousand (3 or 4 years of "comfortable retirement budget) more than the $630K ASFA target (for a single) and put that extra money in a cash bucket within superannuation. Then if you need a cushion during market downturns its there, and if not you could use it for travel. But that assumes, of course that a person can accumulate that extra capital, and not everyone can ... especially if they star thinking about this only as or after they retire.

"a framework where there aren't minimum draw-down rates, and is largely written for US audiences":
Google: "USA Required Minimum Distributions rates"

With all capital in government guaranteed cash, at what age is the $630,000 capital all spent?:
= 67 + NPER((1 + 5%) / (1 + 3%) - 1, (55000 - 28072.2), -630000, 0)
= 98.49 y.

How much capital to not qualify for single Age Pension?:
= PV((1 + 5%) / (1 + 3%) - 1, (98.49 - 67), 55000, 321500)
= -$1,462,123.54 (- = invested)

"The "comfortable" retirement budget isn't all that comfortable.":
Not if including the costs of working and the larger costs of recreation between work.
Otherwise it is.

"The ASFA approach doesn't really do a lot to manage capital through market upturns or downturns, address sequence risk, or otherwise ensure longevity of your capital."
None of those problems with government guaranteed capital and a comfortable rate of capital spending.

Before spending on (uncomfortable) international travel check destinations on internet. That and a walk in the park might suffice.

Dudley,

Re the "comfortable retirement", your mileage may vary but I've tested living on the "comfortable retirement" budget and I think it's ok for getting by and covering the basic bills (assuming you have a fully paid off house), or in other words it works fine as a "moderate" retirement budget, but doesn't match my vision of a retirement lifestyle. Everyone's different.

Re ""The ASFA approach doesn't really do a lot to manage capital through market upturns or downturns, address sequence risk, or otherwise ensure longevity of your capital."
None of those problems with government guaranteed capital and a comfortable rate of capital spending."
- why not? I don't understand your point.

The capital in super is invested in various options which consist mainly of stocks and bonds. How does a "government guaranteed capital" or " comfortable rate of capital spending" protect against market movements, such as sequence of return risks or a 7 year market crash?

Re your formulae, you haven't explained them, and by themselves they're meaningless and it's unclear if or how they relate to the ASFA modelling etc, so I'll ignore them. It would be clearer if you used words to explain your model / calculations.

"Everyone's different.":
Some are more resourceful, get more out of same or less.

"None of those problems with government guaranteed capital and a comfortable rate of capital spending."
- why not?":
Cash deposits adequate. No need to take more risk. Demonstrated by funding 31 year retirement.
Post retirement, if any, funded by Commonwealth.

"7 year market crash":
Cash much less affected.

"It would be clearer if you used words to explain your model / calculations.":

Age when retirement capital all spent:
At age 67, number of years NPER, return 5%, inflation 3%, spend $55,000 / y, receive Age Pension $28,072.2 / y, initial capital $630,000, final capital $0:
= 67 + NPER((1 + 5%) / (1 + 3%) - 1, (55000 - 28072.2), -630000, 0)
= 98.49 y.
~6,000, ~0.02%, of Australians are older. Death a near dead certainty.

Correct me if wrong Dudley, but spending $55,000 pa over the period will be inadequate due to erosion of purchasing power. $55 k won't buy much in tomorrows dollars in 20 + years.

"Correct me if wrong": OK.
Factor (1 + 5%) / (1 + 3%) - 1 results in real returns and values.

Apart from not knowing the future, the formula, for simplicity’s sake only, glosses over the single full Age Pension Asset Test of $321,500.
Be some years before receiving full Age Pension.
$630,000 was the initial capital used.

Dudley,

re "Cash deposits adequate. No need to take more risk. Demonstrated by funding 31 year retirement.
...

"7 year market crash":
Cash much less affected."

The problem with putting it all in cash is inflation, which reduces the real value of your money. The consensus in financial planning seems to be that you generally need some high growth to mitigate inflation over a (say) 30 year retirement period.

Sure, if it's all in cash (or bonds) you won't get hit as hard in a crash, but you would seem to be assuming that your cash returns will beat inflation over the long term. Inflation adjusted treasury bonds might be an answer, but everything has pros and cons.

Personally, I'd say take the best of both worlds. Put a chunk of it in a cash bucket, ready to finance the next 3-5 years (or 7 if you're really conservative). Put a chunk of it in a high growth bucket, to beat inflation over the longer term.

I asked Google's search AI: "When investing for retirement, would putting it all in cash or bonds beat inflation?"

Google's response was:

"Putting a retirement portfolio entirely into cash or traditional bonds is unlikely to beat inflation over the long term, creating a high risk of losing purchasing power. While these assets provide safety, stability, and income, their returns often fail to keep pace with the rising cost of living, making them poor choices for long-term growth in retirement.

Here is a breakdown of how these asset classes perform against inflation:

1. Cash (Savings Accounts, Term Deposits)
Performance: Cash generally earns interest rates lower than the inflation rate, resulting in a negative "real" return (return after inflation).
Risks: While safe from nominal loss (you won't lose the $100 you put in), cash suffers from high "purchasing power risk." If inflation is 5% and your bank account pays 3%, you are losing 2% of your purchasing power annually.
Retirement Context: Holding too much cash in a low-interest environment can severely erode a retirement nest egg over a 10, 20, or 30-year horizon.

2. Bonds (Fixed-Income Securities)
Performance: Bonds typically offer better returns than cash over long periods, but their performance against inflation is mixed.
Risks: During periods of high or rising inflation, traditional fixed-rate bonds tend to underperform because their fixed payouts become less valuable. Additionally, rising interest rates—often used to curb inflation—cause bond prices to fall, leading to capital losses.
Types: Standard bonds are generally poor hedges against high inflation, but inflation-linked bonds (such as TIPS in the US or inflation-indexed bonds in Australia) can help protect purchasing power by adjusting their principal value in line with inflation.

Summary of Performance Against Inflation (Long-Term)
Asset Class Ability to Beat Inflation Key Role in Portfolio
Cash Very Low Safety, Emergency Fund
Bonds Low to Moderate Income, Stability
Stocks/Equities High (Historically) Growth, Inflation Hedge
Better Alternatives for Beating Inflation
To maintain or grow the real value of a retirement portfolio, experts generally recommend a diversified approach that includes growth assets:

Equities (Stocks): Historically, equities have outpaced inflation over the long term because companies can increase their earnings and raise dividends.
Diversification: A mix of assets—including stocks, bonds, and real estate—spreads risk and improves the chances of keeping pace with inflation.
Inflation-Protected Assets: Including Treasury Inflation-Protected Securities (TIPS) or inflation-indexed bonds provides a more direct hedge against inflation."

Dudley, also where you assume the cash return is around 5% and inflation is around 3%, currently the best high interest ongoing (no strings attached) bank accounts are returning around 4.75%, and the inflation rate is around 3.8% (January 2026), so the cash return is slightly better than inflation ... before tax (because income is taxable).

So I think you would need to be a little clearer about the context. If this is in side an SMSF, you can choose the bank account and choose a high return one, but most Australians are not in an SMSF (but a lot of FirstLink readers are).

If it's in super and in the pension phase perhaps tax is not an issue, or is less of an issue.

If it's not in an SMSF but is in an ordinary super fund, you can't shop around for the best cash return rates and you're dependent on what the fund offers.

And if it's outside of super, then the tax probably means the returns from the cash (after tax) don't keep up with inflation.

So it seems to me that the logic depends more than a little bit on the structure you are in.

"the logic depends more than a little bit on the structure you are in":
Correct.

Google: "What would be the management fees for $630000 in assets in Australian Super?"
'Based on AustralianSuper's fee structure as of 2025-2026, the total annual management fees (administration and investment) for a $630,000 balance in the Balanced option are approximately
$3,682 to $4,000+ per year, before tax benefits.'

Google: "What would be the cost of a SMSF with cash only assets of $630,000 where accounting is Self Managed at cost of $0?"
'Based on 2025-2026 industry standards for a "self-managed" (DIY) SMSF holding only cash, the estimated annual cost is approximately $600 to $900+ per year.'

Unfortunately, the wealth transition occured, as my parents passed away I have the comfortable retirement (single) amount. But I dont need 55k per year to live on and I go overseas and interstate regularly.

I would much rather have my mother back then have part of her estate.

It appears to me that superannuation organisations do not do enough for people who have stopped work. Successive Governments keep working away to remove your superannuation. I am preety concerned with the Aged care system. Singles especially will have a much harder time negotiating their care.

I remember attending a Board meeting of an Aged Care organisation of which I was a Director back in 2012 where we had presented to us the future projections of the Baby Boomer bubble that is now occurring
It amazes me how un prepared all facets of the industry along with Government are in dealing with this issue when the relevant information has been around for so long

Some really important issues spelt out, thanks Aaron. It’s also important that each person better understands their potential longevity outlook, its stages and the key influences for them. Many are not aware that for a majority, their outlook is longer than they expect, with often wide differences between life partners.
Few understand that for much of their longevity (the rest of their life) they are likely to be capable of living independently and can do much to enhance this with the support of their health professionals. Typically, the ‘dependent’ stage gets less if the healthy stage is lengthened – a bonus which also has implications for aged care.
By raising their longevity awareness and their potential for taking more control, each person can be empowered to be more self-sufficient and positive about their longevity. This frames the important decisions you have highlighted for each person and their life partner. It also opens their eyes to the many other positives that increasing longevity can offer. Super funds can play a highly productive role in this.

The elephant in the room here is that super funds will need to change the way they invest. With the majority of members in accumulation phase the fund can pursue all sorts of growth opportunities and any cash required to cover pensions is available from contributions.

With many more members in pension phase, the super fund will need to generate much more cash. That liquidity requirement places its own limit on growth and renders unlisted assets inappropriate. That will impact the funds’ stellar performance figures.

SMSFs in pension phase already know the difficulties of balancing the challenges of the liquidity requirement against the need for growth for the future.

Yes,industry and public super funds need to consider the cash needed to fund the expected ever increasing demand for pensions. Perhaps this is another reason for those with a solid level of super funds to consider a SMSF. A SMSF can easily be managed to acheve it's investment strategy to meet the changing needs of it's members. Adding family members in accumulation phase is also possibly a way to provide cash flow.

Jon, isn't that kind of up to individual members to choose their portfolio allocations on the one hand and their withdrawal rates on the other?

Super funds would just keep on doing what they do for the different pre-mix and sector options that they offer. By default, I believe, funds are withdrawn in a hierarchy from cash to conservative to (etc) up to high growth asset classes.

Where it's not good (currently) is that super funds don't separate cash coming in (e.g. from dividends) into a cash bucket, they re-invest it in the bucket it came from (e.g. a balanced option). That's great in accumulation, it's what you want then - but it might not be what you want in retirement. And in my fund at least, you don't get that choice. Super funds need to get with the game plan, otherwise we'll all move to funds with member-direct investing options or to SMSFs.

The real "elephant" is; where is the super going to come from when AI strips away a massive % of the workforce and its contribution.

How True!!

Labour Govt. may pat each others back in introducing compulsory super - whereby you force the employer to contribute a substantial fixed percentage of gross income of the employee (Employer were already paying tax on income of the employee as PAYG withholding tax).

Employee is not forced to save anything. This means that you will be accumulation mode as long as you have a job - as soon as you move to self employment or unemployment - you will not be forced to contribute (although you are incentivised by paying lower tax - 15%) means that you are unlikely to contribute for yourself.

That is one reason why you will find most self employed trades working on Business Name rather than a Pty Ltd - as super contributions are voluntary - even deductible ones - it becomes compulsory when you incorporate and pay yourself a wage.

Higher cost of living / Higher mortgages (bigger loans) / Trying to pay off mortgage earlier etc. ensures that there is generally no salary sacrifice and clearly lower tax rate is not motivation enough - perhaps future Govt. should reduce it further to 0% tax.

About 40% of jobs will disappear in the next decade due to automation in practically all the fields - some very few areas are protected (nursing, child care, police etc - but most likely you will be too old to move).

Today, I was talking to a university lecturer who was told that machine teaching will be better than him and after about 25 years of service, he is no longer required. I doubt he will apply or even get another job at the age of 57 - a decade of unemployment and gardening before he becomes eligible for age pension. Yes, he will be able to withdraw some of his super to make ends meet - like mortgage payments and on compassionate grounds.

Let this message sink to all those who are reading that if you do not contribute (along with your employer) - you will live very poorly and you will most likely not be working till age 67.

Our accountant insists we withdraw a required minimum amount annually from our SMSF (which entails mountains of paperwork). As we age we no longer enjoy overseas travel (do not get stuck in Dubai’s Middle East war), & realise more money will be spent on Aged Care.
We wonder.. should we have not saved during working life, blown most, & now rely on the government pension’s discounts for Aged Care?

If we go back to the Retirement Income Review (2020), it was deemed that retirement income had three pillars
- Superannuation'
- age pension
- personal investments and home equity
Whilst all our discussions focus around superannuation, where is the coordinated approach that incorporates all three Pillars?. We do not have a licensing system for advisers to include all facets.
With 20-30% of retirees entering retirement with some form of debt, why are decisions taken to pay off an existing mortgage with a lump sum from super, when a combination of both super and home equity (reverse mortgage) will put equal importance in both assets to replace debt and improve cashflow.
RE everyone's concern around aged care costs, it should be noted the Government plans to conduct a review of lump sum accommodation in 2029, with the intent to remove lump sums by 2035. Lump sums are a Ponzi scheme where providers chase new residents to pay lump sums before the previous resident's estate is to be repaid the prior lump sum.

Age Care facilities prefer that residents pay make a Daily Accomodation Payment (DAP) rather than a Refundable Accommodation Deposit (RAD). A RAD is essentially an interest free loan to the facility that can be called on to be repaid at any time. So it must be invested very conservatively and at call and that means very low investment returns. A DAP is essentially the interest payable on that RAD, like rent. It is never repaid, so it becomes cashflow to the facility. At 7.65% it is probably the highest interest rate that retirees pay.

Before the recent rule changes, some facilities charged residents an extra fee if the those chose to pay with a RAD and the new rules allow the facility to retain 2% of that capital for every year of the bed is occupied up to 5 years. That is also cashflow. The removal of RADs from 2035 points in the same direction.

The question for residents is: are you better off retaining your capital (and the capital gains) and just paying the interest (DAP) or trying to find the lump sum up front, which may involve selling the family home and thus affecting your age pension and means tested care fees as well.

The saving grace is: the average occupancy of an age care bed is about 2.5 years

"why are decisions taken to pay off an existing mortgage with a lump sum from super":

Where money in super disbursement mode (0% income tax),
moved to Principal Place of Residence (0% tax),
reduces Age Pension Assessable Assets to within region between full Age Pension threshold and part cutoff,
each $1 reduction in Age Pension Assessable Assets results in $0.078 increase in pension, and,
reduces mort-gage payments by $0.06 (6%);
an increase in return of ($0.078 + $0.06) / $1 which is a return of 13.8% / y.

"SweetSpot".