11 ways to make retirement income last as long as you do

The nagging worry of running out of money in retirement can keep you up at night. With a little planning and foresight, these 11 actionable strategies can ensure your money lasts as long as you do.

By Alex Brooks

An Australian man aged 50 today is likely to live another 33.2 years while a woman will live another 36.6 years, according to the Australian Bureau of Statistics.

There is no way around the fact that longer and healthier lives cost more money. Yet most of us don't plan our future retirement income half as well as we plan our holidays.

Retirees are tasked with the complex issue of working out how to spread their life savings in a way that delivers enough income to cover both expected and unexpected living expenses over an uncertain timeframe

Australia is a lucky country to retire in – we have the benefits of Medicare, an Age Pension and many of us have superannuation. If you own your home without a mortgage, you are likely in the box seat to retire at the age of 67 without too much stress or hassle, provided you're happy to live a modest lifestyle.

But when there is a big gap between how much money you want to retire with and your nest egg of superannuation or investments, then you need to read these 11 steps and start to act.

Step 1: improve your financial know-how

Many people don’t take the time to fully understand their superannuation or the power of investment and compound interest.

We usually fail to comprehend the benefits of salary sacrificing extra amounts into our superannuation while working or understand how to invest for long term wealth and financial security.

It puts things in perspective to know that investment returns during retirement can make up the largest amount of income generated in your life.

So start learning and understanding. You don't have to become an expert all at once, but it's worth understanding a few basics like:

• Understanding superannuation and how retirement income works
• The 3 enriching phases of superannuation
• How to calculate what you need in retirement
• 6 checks to make on your next super statement
• 5 foundations of financial security, regardless of age.

Step 2: find a gap in your spending to invest

Do you know how much you spend every year just to live?

Retired people living on fixed incomes tend to know exactly what they spend and when the expense needs to be paid.

If you don't already have a basic household budget, it's worth starting one. Read more on frugal ways to make a budget without busting your lifestyle.

Once you have a handle on your monthly or yearly spending needs, take a look and see where it's possible to cut back.

If you can look at your expenses and find 5% or even just 3% or 1% to cut back on, then use that money to make extra contributions to your super, pay down your mortgage or invest.

If you get really good at finding this gap between spending needs and investment dreams, try cutting back your expenses by another 5% to see if you can create bigger and better investment dreams.

Read more on 7 ways to make debt disappear.

Find ways to reduce your everyday living costs by reading:

• 7 ways to cut your mobile phone costs
• 8 ways to reduce your internet bills
• 16 easy ways to reduce energy
• 8 actionable steps to save on energy costs
• Making the switch from gas to electricity

Step 3: Scamproof your finances

Scams are real, and older people are statistically more likely to fall victim to them.

It's worth understanding the range of scams committed across different technology platforms and ensure you know how to spot them and secure your accounts if you suspect you have unwittingly fallen victim.

Fraud on payment cards jumped 35.6% to $677.5 million in the 2023 financial year, far outstripping the growth in total spend on Australian cards, which increased 15.4% to $1 trillion, according to data from the Australian Payments Network (AusPayNet). So it's not your fault if you get scammed - don't ever be too embarrassed to report it to Scamwatch.

Make sure you understand how digital payment technologies work - including facial recognition technology - and familiarise yourself with Citro's guides on:

• How to spot an SMS scam before they steal from you
• Avoiding romance scams
• Identifying impersonation scams
• Fraudproof your online shopping
• How to avoid being milked: staying scam aware.

Step 4: Start bucketing your spending and investments

Once you retire and begin drawing income from your super, you need both capital growth to ensure your savings last the distance and access to liquid assets to spend on living expenses.

Many of us need to plan for big expenses like home renovations (especially if we want to age in place), a big trip to see family who live overseas or interstate or buy a new car.

One way to stretch your savings - and work out how to pay for bigger one-off expenses - is to use a bucket strategy that establishes different funds (or buckets) of money with different objectives.

Your short-term bucket contains liquid investments (such as cash and term deposits) for regular pension payments, while the medium-term bucket aims for some capital growth to top up the short-term bucket for when you need that new car or holiday.

The long-term bucket can be invested to create long-term capital growth and reduce any risk your retirement savings will run out.

Step 5: Use money outside of super before you draw down and retire

Super will likely play a significant financial role in your retirement, but that doesn’t mean you need to start using it from the moment you turn 65.

Sometimes leaving your savings within the tax-efficient environment of the super system allows it to continue compounding as your fund earns investment returns.

When you have savings outside super or other sources of income which is taxed at your marginal rate – such as rent from an investment property or share dividends–consider leaving your super to continue growing and live on your non-super money during the first years of retirement.

Another simple way to help make your super last longer is to select a higher risk investment option.

Selecting a less conservative investment option means allocating more of your account balance to growth-oriented assets and less to defensive assets (such as cash and fixed interest). Investing part of your savings in growth assets could help boost your super savings as these assets generally provide higher average returns in the long run.

Step 6: Comprehend whether you might be an 'unretiree'  

Australians are rapidly reinventing what it means to retire - it's no longer hanging up your suit and tie to go and play lawn bowls, but might be a mix of travel, part-time work and volunteering.

Deciding to retire no longer means you never want to work again. Many people take some time off before deciding to return to the workforce in a different way – or even in a different industry.

Although full-time work is an option, most retirees find part-time or casual work – or even consulting or project work – a more enjoyable way to retire.

Surprising new research is showing there are health and financial benefits to doing some work as we get older.

Working for longer - though maybe not in your 'every day' job but trying something new - can allow you to increase your cash reserves ahead of full retirement. Some of the largest financial benefits of additional years of work are delaying drawing down - or de-accumulating - your superannuation.

With technology changing the nature of work, there is less need to do physically demanding manual work.

You can also read more about the 5 industries employing older workers.

You might also consider options like:

• Starting your own business or building a freelance career
• Exploring ways to earn a passive income
• Fun ways to earn extra money.

Step 7: Age Pension eligibility and other benefits

Australian citizens are entitled to amazing benefits like (mostly) free education, health care and welfare safety nets like the Age Pension.

We also have a complex taxation system (which helps pays for these benefits) and plenty of bureaucratic hoops to jump through to apply.

Many self-funded retirees, for example, might never get the Age Pension, but can qualify for the Commonwealth Seniors Health Card.

Read more on 12 amazing benefits for older Australians and 6 cards all Australians should apply to have in their wallet.

In many cases, it may be worth paying to get general or personalised financial advice - even though the latter can cost thousands of dollars - to minimise your tax and maximise opportunities to structure your income around the benefits you are entitled to receive.

If you're an Australian living overseas - or are a citizen of a country other than Australia - it's also important to understand your entitlements.

Your super fund might also offer free general financial advice to help you understand all your entitlements - call the number on your super statement and ask about it.

Step 8: Your home holds the key to retirement planning

It's no secret that Australian property is expensive and more people are retiring or entering retirement with a large mortgage.

The greatest gift the Australian retirement income system gives people is that a mortgage-free home - regardless of whether it is worth $400,000 or $4 million - is considered exempt from the Age Pension assets test.

A home that is your main residence is also "capital gains tax-free" - this means you can sell it and downsize to something smaller, while putting the proceeds into your superannuation or other investments.

Read more about the generous downsizer bonus available to Australians.

If you do own a home - especially one that is mortgage-free - then it's likely to be your most significant financial asset and play an important role in your retirement planning.

Our own homes can also provide a useful tax-free boost to your retirement income with payments available to both eligible pensioners and self-funded retirees through the Home Equity Access Scheme (HEAS), a form of reverse mortgage offered by the federal government.

The HEAS provides non-taxable fortnightly payments (or a lump sum) from Services Australia or the Department of Veterans’ Affairs (DVA) secured by a loan against your home.

Step 9: Think about your future care, health and housing needs

As you get older, your home needs to provide more than a roof over your head - it might need to be close to family who can care for you or allow you to lock up and leave so you can travel easily.

Every time you sell up and move house, you lose money in real estate fees and stamp duty - this can cost hundreds of thousands of dollars in big cities like Melbourne and Sydney.

Most of us think we all grow old and end up in a residential aged care - sometimes called a nursing home - but the reality is that most Australians will use formal and informal care in their own home because there are so few aged care beds available. We may also need to plan for these costs in advance of knowing whether we may need it.

For information about residential care options and costs as we grow older, read moneysmart's advice about aged care.

There are privately run retirement homes offering independent, semi-supported and flexible living arrangements. The Australian Competition and Consumer Commission has information about types and costs of retirement homes.

Downsizing - or rightsizing - our home and accomodation as we age is an important part of planning our retirement income. It's important to research what's right for you.

Step 10: Understand annuities and 'peace of mind' retirement income strategies

If long-term financial peace of mind is a key goal in retirement, an annuity product could be the best way for you to turn your superannuation into a retirement income.

Annuities (sometimes also called a 'lifetime pension' by some super funds) provide a guaranteed preset income stream you can use to ensure your regular expenses – like rates and insurance – are covered.

With your regular expenses taken care of, you can use your remaining savings for unexpected costs or things like travel or a new car.

Annuities can be bought from a super fund or life insurance company and you choose whether you want the payments to last for:

• A fixed number of years
• Your life expectancy, or
• The rest of your life.

Read more on Nicole Pedersen-McKinnon's explanation of how retirement incomes work. Citro's finance writer Nigel Bowen has also explained how annuities work and why they might be worth considering as part of your retirement income strategy.

Moneysmart says annuities have pros and cons that include:

Pros of annuities

• A regular guaranteed income regardless of how share markets perform.
• Suitable for someone who doesn't want to bear investment risk.
• An annuity bought with super money is tax-free from age 60.
• An indexed annuity protects you from the rising cost of living.
• Payments from a lifetime annuity will last as long as you do.
• If you nominate a reversionary beneficiary, a spouse or dependent will receive some income if you die.
• If you choose a fixed-term guarantee period, your estate gets some money if you die during that time.

Cons of annuities

• You cannot choose how your money is invested.
• Income payments will be low if the annuity starts in a period with low interest rates.
• You can't change the amount you receive in income once payments start.
• You lock your money away until the term of the annuity ends.
• You cannot withdraw your money as a lump sum.

Step 11: advance plan your legacy, financial and health needs

Many retirees are keen to leave a financial legacy for their children, grandchildren or other family members. Some want to leave something for their favourite charity.

If you’re worried about whether your retirement savings will last the distance, reducing the amount you plan to leave your beneficiaries is a simple way to stretch your retirement dollars.

Most children would prefer their parents enjoy their retirement years rather than going without to leave a substantial amount behind for their beneficiaries.

At Citro, we call this "advanced planning" and it helps avoid things like elder abuse or leaving your loved ones to bicker and fight about your estate should unthinkable things happen such as a sudden death.

Read more about how to:

• Sort out your Will (you don't want to die intestate)
• Think about a Living Will and make an advanced healthcare directive ‍
• What to do about your funeral - paying in advance can be beneficial for some people
• How to give gifts and loans to family or friends
• Understand the process of probate after someone has died.