Retirement income options when markets are volatile
The income assumptions many have carried into retirement are being tested in the current economic climate.
Markets have lurched from one direction to another; interest rates have lifted faster than expected, with the possibility of more increases in the months ahead, and there’s no end in sight to the global uncertainty.
While the market shocks are interspersed with periods of relative calm, The Reserve Bank of Australia (RBA) warns that the disruption could pose challenges to our financial stability.i
Nonetheless, the RBA says Australia is “well placed” to handle the uncertain times.
For those heading into retirement and focused on income security rather than speculation, having a clear view of the different retirement income options can help.
Account-based pensions
One of the most common retirement income options is an account-based pension, often started using superannuation savings. Your money stays invested, and you draw a regular income from the account, choosing the payment amount (subject to minimum annual withdrawals set by law) and the investment mix.ii
The appeal here is flexibility. You can adjust payments and investment options, and the remaining balances can be left to beneficiaries in your will.
On the other hand, account-based pensions are directly exposed to market movements. So, when markets fall, your account balance may be affected. That could reduce your future income particularly if you continue withdrawals during a market downturn.
The risk is most significant in the early years of retirement. Losses combined with regular withdrawals can permanently reduce how long savings last, a challenge known as sequencing risk. Understandably, many retirees respond by spending less than they could afford, even when markets recover, simply to avoid the fear of running out of money later in life.iii
Lifetime annuities
Annuities offer a different approach. In return for a lump sum investment, annuities pay a guaranteed income either for a fixed period or for the rest of your life.
Because the payments are not linked to daily market values, they could deliver a strong sense of certainty, particularly when it comes to covering essential living costs.iv
Some annuities provide fixed payments, some increase with inflation and others offer income linked partly to investment markets while still guaranteeing payments for life. These alternative styles of annuities aim to balance stability with the potential for higher long‑term income.
Combining income streams
Rather than choosing between flexibility and certainty, retirees may benefit from using more than one income stream. This approach combines a guaranteed income source with a more flexible one.
For example, a lifetime annuity might be used to cover the basics such as housing, food and utilities, while an account‑based pension funds discretionary spending, travel or unexpected expenses. Research suggests this could lead to more stable income and greater confidence to spend, even when investment markets are volatile.v
By making sure that your essential expenses are met regardless of market conditions, you may be less likely to panic or reduce spending during downturns.
The Age Pension
The Age Pension is an important part of the retirement income picture for many. It provides a government backed, inflation‑linked income that is not affected by market performance. For eligible retirees, it can act as a valuable safety net later in life, particularly if personal savings decline.
Some lifetime income products receive concessional treatment under the Age Pension assets test, which can improve eligibility or payment levels. Understanding how different income streams interact with Centrelink rules can affect retirement outcomes.vi
Retirement income is about what fits, not forecasts
There is no single best retirement income option. Each comes with trade‑offs between flexibility, risk, growth potential and control. What matters most is how well an income strategy matches your spending needs, risk tolerance and desire for certainty.
The right structure, could help to reduce stress and support more confident spending in retirement. Uncertainty doesn’t have to mean insecurity.
Talk with us about structuring a retirement income approach that fits your priorities and your circumstances.
i The Global Macro-financial Environment | Financial Stability Review, March 2026 | RBA
ii Income streams | Australian Taxation Office
iii Which super funds offer income for life? | SuperGuide
iv, vi Income streams - Age Pension | Services Australia
v How product layering can support retirement outcomes | ASFA
The information in this article does not take into account your objectives, needs and circumstances. We recommend that you obtain investment and taxation advice specific to your investment objectives, financial situation and particular needs before making any investment decision or acting on any of the information contained in this document. Subject to law, Capstone Financial Planning nor their directors, employees or authorised representatives gives any representation or warranty as to the reliability, accuracy or completeness of the information; or accepts any responsibility for any person acting, or refraining from acting, on the basis of the information contained in this document. Principal Wealth Management Pty Ltd trading as BMO Financial Solutions ABN 53 109 336 601 is a Corporate Authorised Representative (CAR 277821) of Capstone Financial Planning Pty Ltd ABN 24 093 733 969 Australian Financial Services Licence (AFSL) No. 223135.
