After decades of saving and planning, discovering that your capital may not comfortably sustain the lifestyle you have in mind can feel unsettling – but the reality is that many pre-retirees face exactly this challenge. Market volatility, career interruptions, family responsibilities, or simply starting to save too late can leave even disciplined investors with a shortfall as retirement approaches.
While this situation can feel daunting, it is rarely without solutions. Remember, financial planning is not a single decision taken at one moment in time, but rather an ongoing process of adjustment and recalibration. When retirement capital appears insufficient, there are several practical levers available to investors – and in most cases, the most effective strategy involves adjusting a combination of these levers rather than relying on a single change.
Lever one: Extend your earning years
Perhaps the most powerful lever available to someone approaching retirement is time. This is because extending your working life by even a few years can have a surprisingly meaningful impact on the sustainability of your retirement plan. Working longer has a dual benefit. Firstly, it allows you to continue contributing towards your retirement savings, thereby increasing the capital base that will ultimately generate your income. Secondly, it reduces the number of years that your capital needs to fund your living expenses. In other words, the same pool of capital must support fewer years of withdrawals.
That said, delaying retirement does not necessarily mean continuing full-time employment in the same role. Increasingly, retirees are choosing to scale back gradually through consulting, part-time work, or pursuing income-generating interests, bearing in mind that even modest earnings during the early years of retirement can significantly reduce the pressure placed on investment capital.
Lever two: Increase your savings rate
Closely linked to earning more is the decision to increase the proportion of income directed towards retirement savings. While this requires discipline, the years leading up to retirement often present a valuable, and sometimes underappreciated, opportunity to redirect cash flow. As you approach retirement, many expenses begin to fall away or reduce — bond repayments may come to an end, financial support for children often decreases, and the need for certain risk cover, such as life cover, may diminish. These natural shifts in your financial commitments can free up meaningful surplus income that can be channelled towards strengthening your retirement position.
Investors approaching retirement may therefore consider maximising tax-efficient savings vehicles such as retirement annuities or employer-sponsored retirement funds, within the allowable tax-deductible limits. Directing annual bonuses, windfalls, or investment proceeds into retirement savings can also help close the gap between existing capital and the required retirement target. Remember, while the time horizon may be shorter at this stage of life, every additional contribution strengthens the foundation upon which your retirement income will ultimately depend.
Lever three: Reassess your retirement spending
Retirement planning ultimately comes down to the balance between the income you require and the capital available to generate that income. If the available capital falls short of expectations, one possible adjustment is to revisit the level of spending anticipated during retirement, bearing in mind that this does not necessarily mean dramatically lowering your standard of living. Rather, it involves carefully examining which expenses are essential and which may be discretionary, and making deliberate, considered adjustments where appropriate. Downsizing a home, reducing travel budgets, or simplifying lifestyle choices can meaningfully reduce the income required to sustain retirement, often without materially compromising overall quality of life.
Importantly, we would caution against relying on broad rules of thumb, such as assuming that post-retirement expenditure will automatically fall to 70% or 80% of pre-retirement income. While these heuristics may offer a starting point, they are often too simplistic and can lead to significant miscalculations. Retirement spending is highly personal and can vary considerably depending on lifestyle, health, family circumstances, and individual goals.
Instead, pre-retirees are far better served by undertaking a detailed and realistic budgeting exercise. This should involve carefully mapping expected expenses across different phases of retirement — including the more active early years, the potentially quieter middle years, and the later years where healthcare costs may become more prominent. Being intentional and precise in this process allows for a far more accurate understanding of required income, ultimately leading to a more robust and sustainable retirement plan.
Lever four: Optimise your investment strategy
Another important lever involves reviewing the structure and efficiency of your investment portfolio. While it would be unrealistic to expect meaningfully higher returns without accepting some level of additional risk, ensuring that your portfolio is appropriately diversified, cost-efficient, and aligned with your time horizon remains critical. One of the most common mistakes we encounter is that investors become overly conservative as they approach retirement, losing sight of the fact that retirement itself can span three decades or more. Positioning a portfolio too defensively for such a long investment horizon can result in returns that fail to keep pace with inflation, ultimately leading to a sub-optimal outcome and unnecessary pressure on capital over time.
High investment fees, unnecessary portfolio complexity, or poorly structured investments can erode long-term returns more than many investors realise. Optimising these elements may not resolve a retirement shortfall on its own, but it can meaningfully improve the efficiency and sustainability of the portfolio. Equally important is maintaining a disciplined investment approach, bearing in mind that emotional decision-making — particularly during periods of market volatility — can lead to poor timing decisions that permanently impair long-term capital.
A note on life expectancy
When confronted with a retirement shortfall, some individuals are tempted to adjust their financial projections by assuming a shorter life expectancy – and on paper, this can appear to solve the problem. If your capital only needs to last until age 80 instead of 95, the required income appears far more manageable. However, this is not a lever that should ever be relied upon in responsible financial planning. Remember, while life expectancy statistics represent averages across large populations, individual outcomes can vary widely – and there is no reliable way to predict how long any particular person will live. Planning for a shorter lifespan may make the numbers appear more comfortable today, but it introduces the very real risk of outliving your savings.
As mentioned at the outset, when retirement savings fall short of expectations, there is rarely a single adjustment that resolves the situation entirely. In fact, most successful outcomes usually involve a thoughtful combination of several available levers. By understanding the levers available and using them strategically, investors can often regain control of their financial trajectory — even when the path to retirement looks different from what they originally imagined.
Have a great day.
Sue
