Julian Lefcovitch (North) and Oliver Ge (Pendal) discuss the challenges facing retirees, and provide key considerations for advisers to help them navigate the complexities of retirement planning.

With around $4.2 trillion in assets (as of December 2024), Australia is the fifth largest pool of investable retirement savings globally, making the Australian superannuation system the envy of the world. However, as a new generation of workers — who have benefited from compulsory super contributions their entire working lives — begin to retire, the superannuation system is about to enter a new phase.

According to Julian Lefcovitch — Wealth Management Product Specialist at North — while the current generation of retirees are facing the same problems as generations before them, such as being able to fund a suitable level of retirement, he argues the current environment of market uncertainty and geopolitical instability, make retirement planning particularly challenging for the current cohort of retirees.

In a panel discussion at the 2025 IMAP Portfolio Management Conference in Sydney on ‘Retirement portfolios: What they should look like and why’, Julian says that with increasing life expectancy, rising cost of living pressures, potentially lower interest rates, and high levels of market volatility, these factors are all combining to create a more complex investing environment for the current cohort of retirees compared to previous generations.

“In a world of uncertainty, the need for good quality financial advice is essential,” says Julian. “With approximately 700,000 Australians retiring within the next five years, if you’re an adviser, it’s a great time to be in the industry. This generation of retirees is the wealthiest that Australia has ever had. They have a lot of money and assets to protect, and they need advice.”

For Julian, when building retirement solutions against this backdrop of heightened global uncertainty, there are a few key considerations he believes should always be front of mind to help mitigate the risks that retirees face. These include: longevity risk, market risk, and sequencing risk. He also emphasises the importance of thinking about emerging trends, as well as retiree preferences, when building solutions.

“At North, longevity risk is top of mind for both our clients and us. We want to give clients the confidence to spend their money in retirement. However, the challenge is making their money last the distance, as this generation is typically living much longer than previous generations.”

According to Julian, retirees generally react to longevity risk by drawing the legislative minimum and underspending in retirement. He says they have a real fear of running out of money because it’s simply too hard to predict how long they’ll live. As such, Julian believes there is a real need for product providers to rollout solutions to address longevity risk and for advisers to develop suitable strategies for their clients.

And while clients generally understand market risk — where their investments either increase or decrease as a result of volatility and unpredicted movements in market valuations — it’s different for sequencing risk, which Julian refers to as the “silent assassin”.

Sequencing risk — the risk that the order and timing of a client’s investment returns are unfavourable, resulting in less money for their retirement — can have a devastating impact on a client’s portfolio.

Julian says there are two key ingredients in sequencing risk: high levels of market volatility, and negative cashflows. And while this isn’t so much an issue in accumulation phase, in contrast, these factors can have a disastrous impact in the drawdown phase at retirement.

To help address these key risks in retirement, Julian says there is a growing preference amongst retirees for products that offer capital protection and stable returns. However, stable returns often means lower investment risk, which means a lower level of return. So, in an environment of rising costs and longer life expectancy, capital protection may not provide the returns and level of income growth that retirees need to fund their retirement. 

However, Julian acknowledges there is a need to consider capital protection as part of an allocation in a retirement portfolio to help protect clients against losses. He says there are some products in the market that enable clients to have exposure to growth assets, but with downside protection.

But he warns capital protection comes at a cost, which needs to be considered. “If the need is for stable returns, then think about how you’ll deliver that without completely moving away from growth assets and the returns that come from those assets.”

According to Julian, advisers who use capital protection are generally not committing the entire portfolio into a capital protected product. Instead, they may opt for a bucketing strategy, where a capital protection product is used in the defensive bucket, while an SMA could be used in the growth bucket.  

In fact, Julian believes a great way to manage sequencing and market risk is through managed accounts, which provide advisers with the ability to outsource investment management. He says by using an SMA structure, investment managers can take advantage of any upswings or downturns in the market and quickly rebalance portfolios when markets move. This provides some protection to clients.