The overlooked risk that can derail a comfortable retirement

For many Australians approaching or entering retirement, attention naturally turns to how their superannuation savings will support their lifestyle in the years ahead. While long-term market growth is often a focus during the accumulation phase, the risks that emerge once you begin drawing an income can be very different.

One of the lesser-discussed challenges retirees face is the impact of negative investment returns, particularly in the early years of retirement. Even relatively small losses during this period can have a sizeable effect on the sustainability of your retirement income.

The problem: timing matters more in retirement

During retirement, super balances are no longer being boosted by regular contributions. Instead, they’re gradually reduced by income payments. This means that market downturns, especially early in retirement, can accelerate the depletion of savings.

A sequence of negative returns in the first few years can reduce the capital base from which future income is drawn. As a result, retirees may need to adjust spending expectations. In this context, managing volatility and limiting downside risk can become just as important as seeking growth.

More certainty over your returns in retirement

CPIplus from Hostplus is an innovative pension investment option designed for retirees who want greater certainty over the investment returns, while still aiming to keep pace with rising living costs.

Unlike growth assets such as shares, which can fluctuate significantly with market movements, CPIplus aims to deliver retirees returns that are more consistent and less volatile. At the same time, it’s designed to provide generally higher returns than more defensive assets such as cash or bonds, which may struggle to meet income and inflation needs over time.

CPIplus returns are set in advance annually at a fixed level above the Consumer Price Index (CPI). As a result, retirees’ returns are not affected by the performance of the underlying investments. More importantly, they will not receive a negative return due to a daily minimum return that is set to zero.

The option is designed to provide greater certainty around investment outcomes and protect your savings, which is particularly valuable in retirement income planning.

How CPIplus helps manage retirement risks

CPIplus has been designed with the specific challenges of retirement investing in mind.

For retirees concerned about maintaining their purchasing power, CPIplus links returns to inflation by incorporating an inflation-based component into its annual return. This approach is intended to help protect income against the impact of rising living costs.

How the CPIplus rate of return is set each year

Unlike other investments that move with the markets, CPIplus offers a fixed level of return that is set above inflation each financial year. The return is made up of two parts:

• a variable component, based on the average of the Consumer Price Index (CPI) over the previous two quarters, and
• a fixed component set by Hostplus each year and currently 2.5%.

Because the return is set in advance, retirees have clearer expectations about their investment income for the year ahead. This clarity can support more confident budgeting and financial planning during retirement.

Balancing stability and return potential

While growth assets may deliver higher returns over the long term, they can also introduce greater short-term volatility. Equally, traditional defensive assets may offer stability but at the cost of lower expected returns.

CPIplus aims to sit between these two approaches, providing a greater degree of certainty and predictability while still targeting outcomes that keep pace with rising living costs.

As retirement planning becomes increasingly focused on managing longevity risk and market uncertainty, investment options that seek to balance consistency and return potential may play a growing role in helping Australians achieve a more comfortable and predictable retirement journey.

*Though returns above inflation are predetermined annually, Hostplus can shorten the return period. Hostplus may also adjust the rate of return with at least 30 days’ notice. You must have a Hostplus Pension account. General advice only. Consider the Hostplus Pension PDS and TMD available at hostplus.com.au, and your objectives, financial situation and needs, which have not been accounted for, before deciding. Past performance is not a reliable indicator of future performance. Issued by Host-Plus Pty Limited ABN 79 008 634 704, AFSL 244392 as trustee for the Hostplus Superannuation Fund ABN 68 657 495 890.