The needs and risks of retirement<\/p>\n
Some of the key risks that today\u2019s retirees are managing include:<\/p>\n
Longevity risk\u00a0i.e. the risk of outliving your funds<\/p>\n
Sequencing risk i.e. the risk of poor market returns early in retirement or during withdrawal periods resulting in diminished savings
\nInflation<\/p>\n
We are living longer than in the past, and therefore must plan for changing income needs as the world evolves around us \u2013 this means today\u2019s portfolio can\u2019t be purely defensive, it needs to factor ongoing capital growth.<\/p>\n
\u201cA lot of our retired clients are concerned about longevity risks and ensuring their portfolios can support their lifestyles well into the future. This means we are finding many are looking at balanced or even high growth portfolio options,\u201d says King. <\/p>\n
To put this into perspective, consider typical superannuation default options. This means allocations to growth assets of 70%-90% (typically marketed towards younger investors). By contrast, older investors are often directed more towards defensive and conservative default options. This means up to 75% of your assets are directed into defensive assets, depending on the fund you use and which option you are in. <\/p>\n
It\u2019s a shift in how you need to think about investing in retirement, and I\u2019ll quote Viola Wealth\u2019s Charlie Viola here:\u00a0<\/p>\n
\u201cYou are a long time alive, and a long time retired.\u201d <\/p>\n
None of this is to say a retired investor\u2019s assets shouldn\u2019t be conservatively invested, but it\u2019s an individual thing.<\/p>\n
\u201cIt always depends on what the investor\u2019s risk profile is, as well as their tax situation, and balance sheet set up,\u201d says Ferrando, who also believes Australian tax residents \u201cmight have the best income market on the planet given the franking credit system.\u201d<\/p>\n
King adds that many investors were forced to rethink income during the period of low interest rates and high inflation, becoming more comfortable with taking on higher risk than they might have been in the past.<\/p>\n
Thinking about total returns \u2013 not just income returns<\/p>\n
Both King and Ferrando stress that retired investors need to adjust their thinking from a focus on simply income returns to total returns.<\/p>\n
King explains this means portfolios that generate income yield and then additional returns from capital growth \u2013 that capital growth can also be drawn upon without necessarily drawing down the core investment.<\/p>\n
Ferrando notes that this approach can also be tax effective and better for the overall portfolio strategy.<\/p>\n
\u201cHolding assets for non-income growth for more than 12 months gives us a concessional tax rate that is unlikely to be too far different from the tax rates that apply to income, especially if the investor\u2019s marginal tax rate is higher than 30%.\u00a0
\nTaking that approach also means that legacy goals can be more easily incorporated into the construction of the portfolio, and into generating the best risk-adjusted total return,\u201d he says.<\/p>\n
![\"\"](\"https:\/\/www.newsbeep.com\/au\/wp-content\/uploads\/2025\/08\/Income25_Sarah-King-inline.jpg\")
<\/p>\n
Sarah King, Advice and Client Care for Stockspot
\nFranking credits and income<\/p>\n
It would be a rare Australian retiree who doesn\u2019t factor franking credits as part of their income stream.<\/p>\n
While you can find a more detailed explainer here<\/a>, franking credits are a tax credit attached to dividends where the company has paid out its after-tax income to investors. It means that you only need to pay tax on that dividend to the extent your marginal tax rate exceeds the rate of tax the company has already paid of that dividend income. If your marginal tax rate is less than the company rate (as many retirees), you may be entitled to a refund of the tax paid.<\/p>\n Many of the ASX 200 offer partial or fully franked dividends, with Commonwealth Bank, BHP and Telstra popular examples of this. You can read more in Carl Capolingua<\/a>‘s article below:\u00a0<\/p>\n Equities<\/p>\n The most consistent ASX dividend stocks<\/p>\n <\/a><\/p>\n All bar one of Carl\u2019s top six offered full franking, with one offering partial (Technology One (ASX: TNE<\/a>)\u00a0at 65% franking). I’ll note that the usual favourites don’t appear in the line-up either!<\/p>\n Ferrando cautions investors not to base their strategies on franking or any form of tax strategy \u2013 aside from ethical and legal considerations.<\/p>\n \u201cAutomatically deciding an income strategy entirely based on a tax strategy may not deliver the best income result. Or the best tax result even.\u201d <\/p>\n He adds, \u201call of these decisions should be a combination of income goals, spending goals, tax goals, legacy goals, mixed in with whatever else is in the investor\u2019s balance sheet.\u201d<\/p>\n What to invest in during retirement<\/p>\n Retirement doesn\u2019t necessarily mean completely different investments compared to the accumulation stage of retirement; the key is diversification.<\/p>\n Ferrando highlights that diversification never goes out of fashion. He is concerned that a focus on Australian dividend-paying shares represents a narrow view, which may limit income, force concentration, and result in a suboptimal portfolio.<\/p>\n \u201cThe mindset for many investors is just to focus on fully-franked dividends, and that might end up being correct, but exploring other avenues is always worthwhile. Consider areas such as REITs, such as private credit, as well as investment grade bonds and other types of high yield bonds,\u201d he says.<\/p>\n Both Ferrando and King caution that you should look under the bonnet of what you invest in and aim to understand it \u2013 if it sounds too good to be true, it probably is. King is concerned about investors being caught up in schemes like the First Guardian Master Fund and Shield Master Fund.<\/p>\n King has found more retirees wanting to strip bonds out of their portfolios, but believes they are an integral part of a diversified portfolio and offer a reliable source of income. <\/p>\n The Stockspot portfolios use ETFs for asset exposures, with the high-growth portfolio using Australian shares, global shares, emerging market shares, property, Australian corporate bonds and physical gold exposures. <\/p>\n The income-specific high-growth option includes the following ETFs:\u00a0<\/p>\n Vanguard Australian Shares High Yield ETF (ASX: VHY<\/a>)\u00a0 \u201cWe also offer a core-satellite approach where you have foundational ETFs and then allocate sections of the portfolio to boost your income,\u201d King says.<\/p>\n Investors might also consider that growth options can adjust in retirement depending on your risk needs \u2013 your share allocation might focus more on quality compounders, rather than taking a chance on start-ups, for example, or you might use growth alternatives to shift your risk profile.<\/p>\n Advice from the experts<\/p>\n Ferrando and King believe investors need to remember the basics when it comes to retirement \u2013 and these don\u2019t necessarily change from the pre-retirement stage.<\/p>\n Diversification remains critical.<\/p>\n \u201cHave a blend of income and capital growth, ensure you are in a strategy that is right for you, your timeframe and your risk profile,\u201d says King.<\/p>\n If in doubt, speak to the experts for help – and may you have a long and prosperous retirement.<\/p>\n Never miss an update<\/p>\n
\n<\/p>\n
\nVanguard MSCI Australian Small Companies ETF (ASX: VSO<\/a>)
\nSPDR S&P\/ASX 200 Resources ETF, SPDR S&P Global Dividend ETF (ASX: OZR<\/a>)
\niShares MSCI Emerging Markets ETF (ASX: IEM<\/a>)\u00a0
\nVanEck FTSE International Property Hedged ETF (ASX: REIT<\/a>)
\n\u00a0Vanguard Australian Corporate Fixed Interest Index ETF (ASX: VACF<\/a>)
\nGlobal X Physical Gold (ASX: GOLD<\/a>)<\/p>\n