Investment risk: when to dial down superannuation aggression
A market crash just months before retirement can be painful, but experts say some risk remains necessary even after stopping work.
When Athena and Michael Amey began seriously planning for retirement about three years ago, they thought they would dial down their superannuation risk in a big way.
It makes sense. Approaching 60, the couple’s priority was to protect their nest egg.
Luckily though, they didn’t. If their conservative tendency was entertained, their nest egg would be at least $60,000 smaller.
“Our adviser completed a risk profile analysis, which was more aggressive than we thought we would be,” Ms Amey said.
She said the couple, now aged 62 and 63, was invested in a “balanced” portfolio of 65 per cent in growth assets and 35 per cent in defensive assets.
“The adviser kept us from going too conservative,” Ms Amey said.
“Our recent June 2025 personal review showed excellent returns, about 10.95 per cent in the last 12 months … we are now invested in line with our agreed balanced risk profile.”
The Ameys are both accountants and estimate the professional advice and investment strategy has left them about $20,000 per annum better off “even before allowing for lower fees and taxes”.
“You should not be too conservative, but also at our stage, you should not be too aggressive in your investments,” Ms Amey said.
“We will review our risk profile every few years, with our adviser, and will most likely in time pull back to a more moderate asset allocation.”
It’s not surprising that the closer to retirement people get, the more protective they become of their investments.
It’s why when there’s severe market volatility, many panic and sell to try and stem future losses.
People who panicked and sold down their investments – or switched superannuation money to the safety and certainty of cash – when the stockmarket sank almost 17 per cent earlier this year instantly locked in their losses. They missed out on the rebound that sent the market to record levels.
This kneejerk behaviour also happened during the Covid-19 crash in 2020, and earlier during the global financial crisis in 2008 and 2009, causing many people’s nest eggs to take a hit from which they could not recover.
It’s a timely warning as record numbers of Australians reach the age of 65, and raises questions about when people should start to take a more conservative approach to their investments and super allocations.
Financial strategists say people should start to think about their investment mix within five to 10 years of their planned retirement date, but in many cases major adjustments are unnecessary.
The biggest risk for many older people, they say, is to go too conservative too quickly and miss out on the inflation-beating growth that shares and property have historically delivered.
Their key recommendation, sometimes called the bucket approach, is to keep two or three years of retirement living costs sitting in cash, and leave the rest in balanced or growth options as a long-term investment.
Money coach Karen Eley says historic market data shows the chance of a negative return is one in every five years.
“You want to remove the risk of a negative return in the last few years before you want to access some of your investments to fund your retirement,” Ms Eley said.
“Rather than a specific age, I’d focus on five years to approaching your retirement. For example, if you plan on retiring at age 67, then look at reducing your balanced or growth investment options within super from age 62.”
Ms Eley said given life expectancies for Australians are above 80, people’s nest eggs will be potentially invested for two decades after they retire.
“In order to keep pace with inflation, you need a portion of your super funds or investments to have a mix of shares and property to continue to provide higher returns than cash or conservative investment rates,” she said.
JBS Financial Strategists chief executive Jenny Brown said many older Australians continue to hold shares, and use the dividends to help fund their living costs rather than reinvest them.
“Our view is when you retire you are investing for the rest of your life,” she said.
Ms Brown said people should not have their entire nest egg sitting in cash, but adds that it’s also not ideal to have 95 per cent of a portfolio invested in growth assets the day they stop work.
A global stockmarket crash just weeks before retirement can be devastating for people still heavily invested in shares. This is called sequencing risk and studies have found its negative impacts can be strongest at the point of retirement.
“It’s good to seek advice in the five years before you retire,” Ms Brown said.
“As long as you have got two to three years of living expenses, cash that you can draw upon, then it doesn’t matter what’s going on around the world.”
Ms Brown says the only time retirees really lose financially “is if you don’t hold enough cash to meet living costs and you have to sell down assets at a reduced price”.
“Make sure you have the right investment strategy,” she said.
Marinis Financial Group managing director and financial strategist Theo Marinis says people should regularly do a risk questionnaire to gauge their tolerance to market gyrations.
“You wouldn’t be 90-10 (growth-conservative ratio) when you are in pension phase,” Mr Marinis said.
“Make sure you have enough money in cash to pay pension payments for a couple of years.”
Nobody starting retirement should be 100 per cent invested in cash, Mr Marinis said.
“A defensive portfolio is 30 per cent growth, 70 per cent defensive. For a $1m nest egg, that’s $700,000 in cash and $300,000 exposed to markets,” he said.
“If you go all cash, you are going to get a lower return forever and a day – it’s death by a thousand cuts.”
Mr Marinis said if your return from cash is the same as the inflation rate, you are losing money.
He said start thinking about retirement from age 55, and he believes a 50-50 mix between defensive and growth assets is often conservative enough, “but I always tell people if you are going to lose sleep over an extra 1 per cent return, you should be more conservative”.
Some superannuation funds reduce members’ risks automatically through life cycle investment options, where from about age 50 or 55 their growth component starts to reduce while cash and balanced or defensive components rise. If you’re in one of these funds – which include Australian Retirement Trust, Aware Super and Vanguard – it’s worth checking if things are changing.
Ms Eley said people should diversify across a range of asset classes, even in retirement.
“Last year’s best performer may not be this year’s, so maintain a spread of all asset classes, including cash, fixed interest, property, Australian and overseas shares as well as alternative assets such as infrastructure and gold,” she said.
“Assess your appetite for risk as you get older.
“Don’t wait for market corrections or crashes to make changes to your investment options. Be proactive and have a plan in place for the age you will start reducing your investment risk.”
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