The Adviser’s Role in Retirement Planning: Why Modelling Beats Guesswork

In Summary

• Only 38 per cent of pre-retirees know how much income they will need each month, and fear of running out is pushing retirees to underspend money they have already saved.
• A comprehensive long-term projection replaces generic benchmarks with an affordability figure specific to the household, addressing the risk of spending too much and the cost of spending too little.
• Modelling alternative funding strategies side by side gives clients a real basis for decisions, and moving that analytical load to a paraplanning partner frees the adviser for the conversation.

Professional Planner recently reported on a problem that advisers have been dealing with for years, and that the superannuation industry appears to be discovering all over again: FORO, or the fear of running out.

The concern was raised at a recent superannuation roundtable, where it reportedly dominated discussion. For anyone who works with clients approaching the end of their working lives, none of this is new. What is new is the data showing how much damage the fear is doing.

The CoreData/Conexus Financial Best Possible Retirement study found that only 38 per cent of pre-retirees say they know how much income they will need each month in retirement. The same proportion say they understand how much they need to save to fund that income.

The majority of Australians approaching retirement are working towards a target they cannot name.

Benchmarks Create as Many Problems as They Solve

There is guidance available. The ASFA Retirement Standard sets out what a modest and a comfortable retirement costs, and it is widely quoted.

The difficulty is that the comfortable benchmark sits a long way above what most people actually have. ATO figures cited by Professional Planner put the median super balance for Australians aged 65 to 69 in 2023-24 at $218,631, with an average of $437,422.

Faced with that gap, a retiree who draws the legislated minimum from their allocated pension and spends as little of it as possible is behaving rationally. The numbers they can see tell them they are short.

The study shows how far this goes. Almost three in 10 people who draw the minimum amount spend only 40 per cent of what they draw down. Another 11 per cent spend between 40 and 59 per cent of it.

These are people denying themselves a standard of living they have already funded.

Comprehensive Projection Turns Fear Into a Figure

Getting the number right is the work.

A comprehensive long-term projection takes a client’s assets, income, expenses, Age Pension entitlement, tax position, longevity assumptions and stated goals, and produces what a published benchmark never can: an affordability figure specific to that household.

That figure answers the question the client is actually asking. Can I spend this much, for this long, and be alright?

Both failure modes carry a real cost. Spending too much creates the shortfall the client fears. Spending too little means years of unnecessary frugality, and capital left behind that was meant to fund a life.

The evidence for what advice does here is strong. The Best Possible Retirement study found that 41 per cent of people without an adviser understand how much they need to fund retirement, against 70 per cent of those with one. The study describes advice as the single clearest lever for improving retirement readiness.

Modelling the Alternatives

A single projection answers one question. The more useful exercise is modelling several.

Most retirement funding decisions involve trade-offs that clients have no way to intuit: drawdown rates set above the minimum, the point at which a lifetime income product improves or worsens the outcome, the interaction between account-based pension balances and Age Pension entitlements, contribution and recontribution strategies, downsizer contributions, and the timing of retirement itself.

Each of these shifts the affordability figure. Modelled side by side, they show the client what their choices are worth in dollars and in years.

That comparison is what makes the adviser conversation productive. A client who can see three scenarios lined up against each other is equipped to make a decision. A client handed a single recommendation is being asked to take it on trust.

It also gives clients something the benchmarks and the fund calculators cannot. Their own numbers, tested against their own choices, explained by someone who can answer follow-up questions.

Where the Modelling Load Sits

The obstacle for most practices is capacity. Comprehensive projections and multi-scenario comparisons take time to build properly, and building them for every retirement client stretches a normal advice workflow past its limits.

This is where a paraplanning partner earns their fee. Cash flow projections, scenario modelling, strategy comparisons and the documentation that supports them are core paraplanning work. Moving them out of the practice frees the adviser for the part that can never be outsourced, which is the conversation itself.

Bottom Line

The industry is investing heavily in retirement income products, and those products have a role to play. A client who does not know their number, though, has no way to assess whether any product suits them.

Advice closes that gap. Comprehensive projection tells a client what they can afford. Scenario modelling shows them what their options are worth. The adviser conversation turns both into a decision they can live with, in every sense.

At Mutual Plans, we build the modelling that sits behind those conversations. If retirement work is a growing part of your practice and the analysis has become a bottleneck, it is a problem worth solving properly.

Frequently Asked Questions

What is FORO?

FORO stands for the fear of running out. It describes the anxiety that leads retirees to draw down and spend far less than they can afford, in case their savings do not last as long as they do.

Why would a retiree underspend if they have enough money?

Published benchmarks tell most people they are short. The ASFA comfortable standard sits well above the median super balance at retirement, so drawing the legislated minimum and spending only part of it looks like sensible caution from where the retiree is standing.

How does a comprehensive projection differ from a super fund calculator?

A fund calculator works from a handful of inputs and generic assumptions. A comprehensive projection models the household’s full position, including assets held outside super, tax, Age Pension entitlement, partner circumstances, expected expenses across the different phases of retirement, and longevity assumptions.

Which strategies are worth modelling for a retirement client?

Drawdown rates above the legislated minimum, lifetime income products, the interaction between pension balances and Age Pension entitlements, contribution and recontribution strategies, downsizer contributions, and the timing of retirement itself. Each one shifts the affordability figure, sometimes substantially.

Does advice measurably improve retirement outcomes?

The CoreData/Conexus Financial Best Possible Retirement study found 70 per cent of advised people understand how much they need to fund retirement, against 41 per cent of the unadvised. The study describes advice as the single clearest lever for improving retirement readiness.

Can a paraplanner build retirement modelling?

Yes. Cash flow projections, scenario comparisons and the documentation that supports them are core paraplanning work. Outsourcing that analysis is a common way for practices to take on more retirement clients without adding capacity in-house.

Glossary

Account-based pension. A retirement income stream drawn from a superannuation balance, sometimes still called an allocated pension. Subject to a legislated minimum annual drawdown that rises with age.

Age Pension. The means-tested government income support payment for eligible Australians of pension age. Its interaction with superannuation balances is a central variable in retirement modelling.

ASFA Retirement Standard. A benchmark published by the Association of Superannuation Funds of Australia estimating what modest and comfortable retirement lifestyles cost.

Decumulation. The phase in which a member draws down accumulated savings, as distinct from the accumulation phase in which they build them.

Downsizer contribution. A superannuation contribution made from the proceeds of selling a qualifying family home, available to eligible Australians above a set age.

Drawdown. The amount withdrawn from a retirement income stream in a given year. Legislation sets a minimum percentage that increases with the member’s age.

FORO. Fear of running out. Industry shorthand for the anxiety that suppresses retiree spending.

Lifetime income product. A product that converts capital into income guaranteed for life, sometimes described as an annuity or an innovative retirement income stream.

Recontribution strategy. Withdrawing an amount from superannuation and recontributing it to change the tax components of a balance, often for estate planning purposes.

Retirement Income Covenant. The obligation on superannuation trustees to formulate and act on a strategy for members who are in or approaching retirement.