Morningstar’s 2026 Outlook report notes that more Australians are entering retirement with greater levels of wealth. With that shift comes a change in the investment problem many Australians are trying to solve – it’s no longer purely about accumulation, but sustainable income generation, capital preservation and managing risk over decades in retirement.

This means that the traditional model of save-invest in growth assets-retire-decumulate is being stretched as retirement periods lengthen, inflation remains elevated, asset valuations are high and return expectations are being re-calibrated.

In the report, Senior Investment Analysts Jonathan LaPirow and Thomas Dutka share how Australian investors can approach this problem. I’ve taken the key themes and insights from the report below:

1. Income generation is the new focus

Retirees or soon-to-be retirees must change objectives from accumulation to generating reliable, sustainable income streams. The Outlook emphasises that the objective shifts from growth alone to income plus risk control.

This means revisiting assumptions about asset allocation in the post-work phase. Retirement is not simple a mirror of accumulation with a heavier bond tilt – it demands thoughtful structuring of portfolios for both yield and longevity.

The report runs through where Morningstar would focus for income generation across equities, fixed income and unlisted assets.

One portfolio-focused approach is the Bucket portfolio method, that allows retirees to hold a cash buffer, but still invest in growth assets to address longevity risk.

2. Risk of drawing down during down markets

One of the most acute risks in retirement is starting to withdraw when markets are depressed – this is sequence of returns risk. Annika Bradley has outlined the severity of these risks for retirees here. The Outlook underscores that when the focus becomes income and preservation, timing and volatility matter more than in accumulation.

This means building buffers to avoid being forced sellers in downturns. It also means rethinking how much volatility you can tolerate now that you’re drawing from capital.

3. The return environment is tougher

The Outlook implicitly acknowledges what many retirees already feel. There are mounting headwinds for returns – from higher bond yields, elevated valuations and inflation risk. This means an income generating portfolio must be structured with realistic assumptions.

Superannuation return assumptions may need recalibrating. Retirees who built plans expecting ‘average’ market conditions that reflect on the recent past may need to shrink withdrawal expectations or extend their working life.

Mark has written before on what returns you will need for a comfortable retirement.

4. Asset allocation needs to change, but not in the way you think

There are many rules of thumb in investing that retirees like to follow. Rules like 100 minus age in equities is increasingly obsolete in a low return world. The Outlook suggests that an overly conservative portfolio may compromise longevity of income.

Growth assets still have a role in retirement, especially if you have a longer horizon, some capacity to tolerate short term volatility and complementary income sources such as the Aged Pension and homeownership. For retirees, it’s a balancing act between growth for longevity of their portfolio and defense for stability.

5. Contingency plan

LaPirow and Dutka stress that retirement isn’t a static goal. There are many factors that can change your outcomes, and many factors that you must balance. Longevity risk, chance of chronic illness, policy risk to taxes and super rules are all front of mind. They suggest that investors need to consider scenarios, rather than a single outcome that is certain.

Investors should be flexible with their strategies. Delay retirement by a year, or plan for a modest adjustment to income if returns disappoint. Being adaptive is key to resilient retirements.

Where to from here?

Those that are yet to retire or are soon to retire have levers at their disposal that can improve their outcomes and contribute to a more resilient retirement.

  • Revisit your retirement budget and stress-test. Simulate poorer returns, higher inflation and health shocks. What are the results, and how can you maintain your quality of life?
  • Build a cash buffer before retiring. Having 1-3 years of living expenses can help avoid drawing down on growth assets when they aren’t performing well.
  • Consider delaying retirement or working part-time for longer. One additional year of retirement savings and one year less drawing down on your retirement funds can have a large difference to your outcomes.
  • Structure your retirement portfolio so you are able to include growth assets. If you have a 30+ year retirement horizon, growth assets are required for longevity.
  • Build in flexibility to deal with policy changes. Superannuation, Aged Pension entitlements and home equity treatment can all change.

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