Confidence, Not Capital: The Big Retirement Advice Opportunity

Australia is entering a defining decade for retirement. Over the next ten years, around three million Australians, almost one in ten of the population, are expected to retire, bringing with them more than $1.2 trillion in superannuation savings.¹ On average, one Australian retires every two minutes.²

These figures indicate that we are facing a retirement tsunami. But this is not a sudden shock, it’s a demographic shift that has been building for years, and one demanding a thoughtful evolution in how advisers approach the retirement issue.

Australia’s superannuation system, now exceeding $4 trillion in assets,³ is rightly regarded as a great national policy success. It’s excelled in the accumulation phase, supported by compulsory contributions, strong long-term investment returns, and competitive fees.

What has lagged, until relatively recently, is the system’s ability to help Australians convert that accumulated wealth into sustainable, confident income in retirement. That gap is now coming into sharper focus.

The uncomfortable reality of retirement income

One of the more underappreciated facts in retirement planning is that most of the retirement income is not “locked in” by the time a client stops working. Around 60% of a retiree’s total income is generated from returns earned during retirement itself. ⁴

This single statistic fundamentally reframes the adviser’s task. Retirement is not the end of investment risk, rather it’s the point at which investment outcomes matter most.

It also explains why sequencing risk is so critical. Two retirees can earn the same average return over 25 or 30 years yet experience vastly different outcomes depending on what happens in the early years. A sharp market downturn shortly before or after retirement can permanently impair income sustainability, even if long-term returns recover.

The irony is that many retirees respond to this risk by becoming overly conservative reducing exposure to growth assets at precisely the point when they may still need returns to fund 25 or 30 years of post work life.

Inflation and longevity risk only compound the problem. While life expectancy at birth is often quoted, Australians who reach retirement today, particularly couples, have a high probability that at least one partner will live well into their late 80s or 90s.⁵

Moreover, planning to “average” outcomes is not prudent. By definition, half of clients will live longer than the average figure.

Confidence: the hidden driver of outcomes

If these risks are well understood by advisers, they are far less well understood, or at least emotionally processed, by clients. One of the clearest findings from our Riding the retirement wave⁶ paper is that confidence, not capability, is often the binding constraint on retirement outcomes.

Only around one-third of ‘Gen-X’ Australians describe themselves as financially confident⁷. Many retirees underspend out of fear — fear of running out of money, fear of unexpected healthcare costs, fear of market volatility. One study found that the median pensioner dies with around 90% of the wealth they had at retirement still intact⁸.

This is not rational optimisation, and this is where a financial adviser can help.

Advised clients consistently report higher confidence and better wellbeing than the unadvised. In practice, this means advisers are increasingly called upon to do more than optimise portfolios. Effective retirement advice often looks like trusted, ongoing conversations about identity, purpose, family, loss and change.

Advisers increasingly function as life coaches, helping clients navigate the transition into retirement, not just fund it. Confidence changes behaviour, and behaviour, over decades, drives outcomes.

From buckets to layers: reframing retirement income

Traditional bucket strategies — allocating assets across short-term, medium-term and growth buckets — remain valuable tools for managing sequencing risk. But they are, at heart, still asset centric.

What we argue for in Riding the retirement wave is a broader shift: from bucketing assets to layering income.

An income layered framework starts with how retirees live:

• A base layer to fund essential expenses with high reliability
• A contingency layer for unexpected costs such as healthcare or home repairs
• A discretionary layer for lifestyle spending
• A legacy layer aligned to estate objectives

This approach aligns naturally with the objectives of the Retirement Income Covenant, which asks super fund trustees, and by extension advisers, to balance income maximisation, risk management and flexible access to capital. It also creates space for a wider toolkit of solutions, including Innovative Retirement Income Streams (IRIS).

Why IRIS matters, and why earlier is better

IRIS products were designed to address a longstanding structural gap in Australia’s retirement system. They sit between traditional account based pensions, which are flexible but offer no income guarantee, and lifetime annuities, which provide certainty but limited flexibility.

IRIS blends elements of both. Critically, it also offers social security concessions designed to support spending confidence in retirement.

IRIS does not need to be a “retirement day decision”. Advisers can introduce IRIS-thinking and design well before retirement, even during the accumulation phase.

Making an early election does not lock clients into future actions, but it can materially improve their future optionality, particularly by reducing the amount assessed under Centrelink means testing.

Modelling – both ours and independent – indicates that integrating an innovative retirement income solution alongside traditional pension products can improve retirement income by up to 60%, depending on individual circumstances.¹⁰

This uplift does not come from taking more investment risk. It comes from better system design: higher Age Pension entitlements, more efficient drawdown strategies, and greater confidence to maintain appropriate growth exposure.

These benefits can be especially powerful for mass affluent Australians, clients whose wealth sits primarily in superannuation and the family home. They are also highly relevant in real-world scenarios such as the death of a spouse, where Centrelink thresholds shift abruptly and entitlements can be lost without careful planning.

IRIS is not a silver bullet. There are trade-offs, including restrictions on access to capital later in life. IRIS is best understood as one tool in a broader income layering toolkit, not an all-or-nothing solution.

The adviser opportunity

Demographics, regulation and product innovation are finally aligning around retirement income. For advisers, this represents a once in a generation opportunity.

Those who engage clients earlier, integrate social security considerations from the outset, and articulate a clear “super into retirement” philosophy will be better placed to deliver meaningful, measurable outcomes.

They will also be better positioned to demonstrate value in a world where clients increasingly judge advice not just by balances, but by confidence, income sustainability and quality of life.

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