Investment performance will not help smaller balances: Research

Recent research from Monash University demonstrated retirees will require a balance above $400,000 to achieve sustainable retirement without investment-related constraints.

The Comfort or Collapse: Why Balance Size and Design, Not Just Returns, Decide Retirement report highlights the "fragility" of retirement outcomes for Australians amid longer life expectancy, rising living costs and market instability.

The research said retirees with larger balances can withstand higher withdrawals, but "overly conservative allocations virtually guarantee erosion."

"If someone has a low superannuation balance, one option is to adjust spending. Our study finds that when retirees target a moderate level of spending rather than a more comfortable lifestyle, the portfolio is more likely to remain sustainable over ten years, regardless of the asset allocation," Monash Centre for Financial Studies associate professor Ummul Ruthbah said.

"Another important consideration is maintaining some exposure to equities. Our capital market assumptions suggest that bond-only portfolios are unlikely to generate optimal returns relative to the level of risk taken over the long term.

"Retirees with less than $250,000 face a high likelihood of exhausting their superannuation within a decade if they target a comfortable lifestyle. At balances above about $400,000, the chance of sustaining income rises to near certainty, regardless of portfolio design."

The findings from the research are substantiated by the Retirement Standard published by the Association of Superannuation Funds of Australia (ASFA), where a comfortable retirement super balance will require $630,000 for singles and $730,000 for couples.

Meanwhile, Monash Centre for Financial Studies doctor Trinh Le also compared investment performance between equities and bonds during retirement but highlighted that retirees with small savings can't fund higher spending targets, regardless of their strategies.

"Mixed equity-bond portfolios, which are investment strategies combining stocks (equities) and bonds (fixed income), provide the most consistent outcomes for modest balances," Le said.

"All-equity strategies deliver higher average ending balances but carry sharper drawdown risks, while bond-heavy portfolios virtually guarantee capital erosion when withdrawals are set at comfortable levels."

Further, the analysis also exposes a deeper structural challenge regarding gender gaps and policy implications, as women approaching retirement hold balances 20-30% lower than men.

"For median female retirees ($212,000), even a balanced portfolio still carries material chances of exhaustion within a decade, while men with median savings ($283,000) face far more secure outcomes," Ruthbah said.

"This gap has profound implications for retirement adequacy and policy design. It underlines the need for measures to boost women's superannuation savings, whether through targeted contribution incentives, reforms to address career breaks and pay disparities, or enhancements to the Age Pension safety net."

The study said retirees can consider a "flexible" withdrawal strategy by reducing or postponing withdrawals from their super during periods of significant market decline, rather than relying on a fixed withdrawal rate regardless of investment performance.