How long will my money last? Retirement sustainability and why Australian context changes the maths

The question that preoccupies most retirees is not which fund to choose or what asset allocation to use — it is whether the money will run out before they do. Retirement sustainability modelling attempts to answer this question rigorously. It involves starting balance, drawdown rate, investment returns, inflation, longevity, and other income sources. When all those variables are personal, the generic rules circulating in the popular press provide at best a starting reference. For Australian retirees, there is also a structural feature of the system — the Age Pension — that makes the sustainability picture quite different from what the standard US-derived rules suggest.

The 4% rule and its origins

The "4% rule" comes from US academic research by William Bengen (1994) and the so-called Trinity Study (Cooley, Hubbard, and Walz, 1998). Both used US historical market returns to model how much a retiree could withdraw from a diversified portfolio each year, indexed for inflation, and have the portfolio survive for 30 years. Withdrawing 4% of the starting balance, adjusted annually for inflation, historically succeeded in a very high proportion of simulations. The rule became a useful heuristic in US financial planning.

The direct application to Australian retirees is limited, for several reasons. The data is US-specific; Australian return patterns differ. The 30-year horizon may understate longevity for a healthy 65-year-old. The rule assumes the portfolio is the only income source — it contains no allowance for the Age Pension. And it doesn't model the specific tax advantages of pension-phase superannuation (0% earnings tax) or the refundable franking credits available to low-tax Australian super funds.

The Age Pension changes the calculation

The most important Australian difference is the Age Pension. The maximum Age Pension as of March 2026 is $1,200.90 per fortnight for a single person and $905.20 per fortnight each for a couple, giving an annual pension of approximately $31,200 for a single and $47,100 for a couple (both figures inclusive of supplements, from DSS Guide 5.1.8.10). These payments are indexed twice yearly to wages or CPI, whichever is higher — providing inflation-protected base income for life, regardless of how long the retiree lives.

For a retiree receiving any Age Pension, the super balance does not need to fund the entire retirement income. The Age Pension acts as a longevity buffer: even if the super balance runs down substantially over a long retirement, the Age Pension — which actually increases if the assets test position improves — provides a floor that the US model lacks. This is why Australian retirees with part or full Age Pension eligibility can often sustain withdrawal rates from super of 5–7% or more, where the US 4% rule would counsel greater caution.

Sequencing risk

The mechanism that most undermines retirement portfolios is sequencing risk — the risk that poor investment returns occur in the early years of retirement. The problem is not simply that returns are bad in some years; it is that poor early returns, combined with ongoing withdrawals, deplete the portfolio from a lower base. When returns eventually recover, they apply to a much smaller balance, and the cumulative damage is irreversible. The same average annual return over 30 years produces very different outcomes depending on whether the good years come early or late.

Strategies to manage sequencing risk include maintaining a cash or defensive buffer sufficient to fund the first few years of drawdowns without needing to sell growth assets at depressed prices, structuring the portfolio so that a market downturn does not force liquidation at the wrong time, and preserving optionality to reduce drawdowns temporarily in a severe early-retirement downturn. Bucket strategies — separating the portfolio into a short-term cash layer, a medium-term defensive layer, and a long-term growth layer — are a common structural approach.

Three worked examples

A couple with $800,000 in combined super, targeting $65,000 in annual income (close to the ASFA comfortable retirement standard), and eligible for the full Age Pension receives approximately $47,100 per year from the pension — leaving $17,900 to be drawn from super. At a $800,000 starting balance, that is a 2.2% withdrawal rate. Sustainability is robust. The couple could draw more comfortably if desired.

A couple with $1.5 million in combined super, targeting $80,000 per year, and not eligible for Age Pension (above the assets test cutout) must draw the full $80,000 from super. At $1.5 million, that is a 5.3% withdrawal rate — above the 4% rule's benchmark, and requiring some care particularly around sequencing risk in the early retirement years. Not necessarily unsustainable, but tighter.

A couple with $250,000 in super, targeting $55,000 in annual income, eligible for the full Age Pension: the pension provides $47,100, leaving $7,900 from super — a withdrawal rate of 3.2%. Sustainability is strong, and the reducing super balance will actually increase their Age Pension entitlement over time as assets fall.

Inflation and longevity

What matters for sustaining lifestyle is real returns — returns after inflation. Cash and fixed interest often fail to outpace inflation over long periods, particularly in inflationary environments. Equities and property have historically provided real returns above inflation, but with volatility. A portfolio that is too conservatively invested in the name of "safety" may actually be more vulnerable to the slow erosion of purchasing power over a 25-year retirement than a more balanced allocation.

A 65-year-old today has a substantial probability of living to 90 or beyond. A couple at 65 has a meaningful probability of at least one partner surviving to 95 or more. Planning to 90 is a minimum; planning to 95 for couples is prudent. Personal circumstances — health, family history, lifestyle — can inform the planning horizon.

For retirees who want certainty about income for life, regardless of how long that life is, lifetime annuity products that guarantee income in exchange for a lump sum can be layered into the drawdown structure alongside super and the Age Pension. The 2019 retirement income framework reforms, which gave qualifying lifetime income streams a 40% assets test reduction (only 60% of the purchase price is assessed under the assets test), have made these products more attractive for Age Pension-eligible retirees.

Sources

• Services Australia — How much Age Pension you can get
• Social Security Guide 5.1.8.10 — Common pension rates
• Social Security Guide 4.9.3.35 — Means test assessment of asset-tested income streams (lifetime)
• ATO — Exempt current pension income
• Moneysmart — Retirement income and tax
• Moneysmart — Account-based pensions