Not all income is created equal: structuring retirement portfolios to align with income needs 

In the complex world of retirement planning, it is often challenging to align clients' portfolios with income needs that are as varied as they are critical. Understanding the hierarchy of retirement spending and the strategic structuring of income sources can make the difference between a comfortable retirement and a financially strained one.  

There are generally a limited range of actions that retirees can consider when projected income falls short, but with new, flexible solutions like Allianz Guaranteed Income for Life (AGILE), lifetime income streams can be an effective part of the solution. 

The hierarchy of retirement spending 

Retirement spending typically falls into a hierarchy, beginning with essential expenses such as housing, food, and healthcare, and extending to discretionary spending like travel and leisure activities and finally estate planning and legacy goals. This hierarchy underscores the importance of matching dependable income sources, such as guaranteed lifetime income streams, with regular, predictable expenses. More variable expenses might be met with other income and/or growth-oriented solutions and a cash reserve, providing flexibility and security. 

Structuring a portfolio to align with income needs 

When structuring a portfolio for retirement, diversification is key. The Association of Superannuation Funds of Australia (ASFA) research highlights the gap between median superannuation balances, being $397,566 for a couple combined1, and the $690,000 savings required for a ‘comfortable retirement’2. This gap emphasizes the need for retirees to diversify their income sources beyond traditional savings, incorporating dividends, interest, rent etc. 

Growth-oriented portfolios can provide the potential for increased returns, but they come with inherent risks. For those seeking stability, guaranteed lifetime income products such as AGILE offer a compelling solution. AGILE provides downside protection, ensuring that lifetime income payments do not decrease even when markets fluctuate. 

Options when income falls short 

Retirees facing projected income shortfalls have limited strategies at their disposal: 

• taking on greater risk: by shifting to growth-oriented investments, retirees can potentially increase their returns. However, this approach requires careful consideration of risk tolerance and market conditions, as well as careful portfolio management to mitigate sequencing risk. 
• delaying retirement: postponing retirement can allow for additional savings accumulation and potentially higher or longer retirement income – but this option may not be attractive or even available to many retirees. 
• cut back spending: adjusting lifestyle expectations and reducing discretionary spending can help manage limited resources however this is often the least favoured option and where tailored advice is crucial. 
• incorporating guaranteed lifetime income streams: AGILE offers a dependable income source that can bridge the gap between funding essential expenses for the long term and available funds. With its design incorporating a guaranteed future lifetime income rate and investment options with downside protection, AGILE manages longevity and sequencing risk, helping to ensure financial security throughout retirement. 

The role of guaranteed lifetime income streams 

Lifetime income streams are akin to life insurance for longevity, protecting against the financial risks of outliving savings. By allocating a portion of a client's portfolio to AGILE, advisers can provide clients with peace of mind, knowing their budgeted essential expenses will be covered regardless of market conditions. The flexibility available in AGILE also allows for partial or full withdrawals if there is an otherwise unplanned and unfunded expense or a change in circumstances.  

When determining the allocation for lifetime income streams, it makes sense to start with the client's monthly retirement budget, assessing how much income is needed for daily living expenses and identifying portions of spending that may fluctuate. This tailored approach ensures that clients can maintain their desired lifestyle without financial stress. 

Not all income is created equal and structuring a retirement portfolio requires a nuanced understanding of spending hierarchies and income sources. As the landscape of retirement planning evolves, retirement income strategies will need to evolve to meet the diverse needs of clients. By diversifying income sources and incorporating guaranteed lifetime income products, financial advisers can help clients achieve a secure and comfortable retirement. 

^{This material is issued by Allianz Australia Life Insurance Limited, ABN 27 076 033 782, AFSL 296559 (Allianz Retire+). Allianz Retire+ is a registered business name of Allianz Australia Life Insurance Limited. This information is current as at June 2025 unless otherwise specified and is for general information purposes only. It is not comprehensive or intended to give financial product advice. Any advice provided in this material does not take into account your objectives, financial situation or needs. Before acting on anything contained in this material, you should speak to your financial adviser and consider the appropriateness of the information received, having regard to your objectives, financial situation and needs. No person should rely on the content of this material or act on the basis of anything stated in this material. Allianz Retire+ and its related entities, agents or employees do not accept any liability for any loss arising whether directly or indirectly from any use of this material. Use of the word ‘guarantee’ in this material refers to an assurance that certain conditions or contractual promises will be fulfilled by Allianz Retire+ from the available assets of its Statutory Fund No 2, in relation to the product terms. This includes ‘guaranteed’ income payments in the Lifetime Income Phase which will be paid from the available assets of Statutory Fund No 2, noting that Allianz Retire+ may terminate the product in certain limited circumstances as outlined in the Product Disclosure Statement referred below. Allianz Australia Life Insurance Limited is the issuer of Allianz Guaranteed Income for Life (AGILE). Prior to making an investment decision, investors should consider the relevant Product Disclosure Statement (PDS) and Target Market Determination (TMD) which are available on our website (www.allianzretireplus.com.au).}  

_{1 ASFA, Research paper: An update on superannuation account balances September 2024.}

_{2 ASFA Standard, December quarter 2024.}