26 May 2026
Once you retire, the investment decisions you make carry more weight than they did during your working years. You can’t replace losses with your next pay cheque, and your nest egg needs to produce a consistent and positive investment return to ensure that your super will last. Getting the balance right between growth vs income targeted investments as well as the right combination of growth vs defensive investments requires careful consideration.
The relationship between risk and return is straightforward: higher expected returns generally mean higher risk. But in retirement, taking on too little risk can be just as problematic as taking on too much.
In retirement, many retirees choose to dial back the level of growth assets (which makes sense) and be invested in more conservative or moderately conservative options, which have a large exposure to government bonds and duration, which underperform when inflation spikes.
On the other hand, if investment income doesn’t keep pace with inflation and rising living costs, you would be forced to draw more from your capital to maintain the level of income that you need. Drawing down on capital may include drawing from growth assets.
Steep losses from geopolitical shocks or market downturns also hit ‘growth’ investments hard as well. This includes having to sell assets at low prices to fund the shortfall in income. This is because retirees generally do not have the luxury to wait for markets to recover.
Overall, this results in less capital to earn returns on going forward, and less to live on for the rest of retirement. Gaining help with investment selection, understanding the investment options available and how they work together helps you approach retirement with clarity rather than guesswork.
Defensive assets prioritise capital preservation, income and stability over growth. They include cash, term deposits, fixed interest securities like bonds, and annuities. Cash offers the most security and immediate access but typically generates the lowest returns. Term deposits lock your money away for a set period in exchange for a fixed rate of return, which provides certainty but means you miss out if markets perform strongly during that time.
On top of this it may be possible to avoid investing in the market altogether using an annuity, which involves exchanging a lump sum for regular income payments, either for a fixed period or for life. They function as a type of fixed interest investment and can provide certainty of cashflow and a guaranteed income that keeps paying regardless of market conditions. This does, however, come with consequences, such as the loss of flexibility and potential loss of access to capital.
Growth assets include property and shares. Property can deliver rental income and capital gains, though prices are notoriously hard to predict and can swing in line with corporate and economic conditions. Shares give you ownership in a company and the potential for dividends and capital growth, but their value is more volatile than defensive assets.
Growth assets carry more risk, but over the long term they’ve historically delivered stronger returns than defensive assets. Most retirees will have a reasonable time horizon to invest in growth investments and exposure to growth assets can help protect against inflation and extend how long savings last. However, identifying the right ratio of growth to defensive assets requires careful consideration, discussions on your risk tolerance, your income needs vs super balances and whether this is achievable.
According to MoneySmart, investment strategies for retirement typically fall into four categories:
Your risk appetite, time horizon, and income needs determine which strategy fits your situation. There’s no universal right answer. What works depends on your circumstances and goals.
Spreading investments across different asset classes, combining defensive and growth assets, helps balance security with the potential for higher returns. Diversification reduces your exposure to any single market downturn or poor-performing sector, which matters even more in retirement when you’re relying on those savings to fund your life.
A financial adviser helps you build an investment mix tailored to your retirement goals, risk tolerance, and the income you need your portfolio to generate. If you’re approaching retirement and want to talk through your investment options, please get in touch.
Disclaimer: Information presented is general in nature and hasn’t taken into account your personal circumstances. You should consider whether the strategies and investments are suitable for you by seeking personal advice from a licensed financial advisor. We do not accept any liability for any resulting loss or damage of the reader or any other person. Past performance is not a reliable guide to future returns.
