After 20 years as a financial adviser, I’ve seen hundreds of Australians move into retirement, and many get it wrong. There’s huge confusion around super, tax and managing money as retirement approaches, because the super system is designed to help you build wealth but is much worse at helping you draw from it.
Going from earning a salary to living off your savings is one of the most stressful financial periods of your life, and super funds offer little real guidance. Here’s why the final five years matter so much, the three levers most people overlook, SMSFs vs industry funds, and how to manage your portfolio through it. Tap any button to jump to that part of the video.
The five years either side of retirement are the “red zone”, when a crash or a panicked decision does the most damage. Rather than moving everything to cash, keep a 1–2 year cash buffer, get the boring levers right (tax structure and fees), and build a simple portfolio you can stick with: a core, a few satellites and that buffer.
Part 1: The retirement red zone
Advisers call the five years before and after retirement the critical window. Market swings or poor decisions here can seriously affect your future, and it’s when confusion is highest.
A common mistake is shifting a big chunk of super to cash or “stable” options in the final five years out of fear of a crash. In the 2020 COVID crash, thousands of Australians switched to cash at the worst possible moment, just as markets started one of the strongest rebounds in history. Members of a typical balanced option who switched to cash in April 2020 ended up roughly 20–25% worse off by mid-2021 than those who stayed invested.
Reducing risk as retirement nears is sensible, but doing it too much or too early can leave you without enough growth to fund decades of retirement.
Part 2: The system isn’t designed for you
Super is good at building a nest egg, but it doesn’t guide you well when it’s time to turn it into income. Regulators have flagged the gap: more than 1.5 million Australians are already in retirement phase, holding over $575 billion, and another 2.5 million are due to retire in the coming decade. Yet only about a third of those close to retirement feel confident they’ll be financially comfortable.
ASIC’s review of how super funds engage with retirees found most offer one-size-fits-all communications aimed at people about to retire, with much less support once you’ve retired. Meanwhile, the cost of a basic financial plan has risen to over $4,000, out of reach for many. That leaves a grey zone: retirees who know something isn’t right but can’t afford advice to fix it.
You don’t need to become an expert, but you do need a clear plan, and you can’t fully outsource it. Even one session with a quality adviser or accountant before you retire can uncover tax or structure issues that save thousands over time.
Part 3: The three levers of super management
Many people lump everything under “super performance”, but your final balance depends on three separate levers:
Lever 1, admin and tax: moving from accumulation (earnings taxed at up to 15%) to an account-based pension (earnings generally tax-free) once you’re eligible is a simple change that can lift your retirement income straight away.
Lever 2, fees: those industry fund TV ads are generally right about fees. In one example, a 0.5% a year difference in fees starting at age 25 can mean around $243,000 more by retirement.
Lever 3, performance: it matters, but your easiest wins often come from levers 1 and 2. Reducing fees and optimising tax may seem boring, but they can add tens of thousands with little risk.
Part 4: SMSF vs industry funds
A self-managed super fund (SMSF) can make sense, but it’s not for everyone. For smaller balances or less disciplined investors, the complexity often outweighs the benefit. As your balance grows, the maths changes: a low-complexity SMSF typically costs around $2,500 a year to run, and that cost is largely fixed whether you have $1 million or $5 million.
There’s also valuation transparency. Many large funds hold unlisted assets such as commercial property and infrastructure that aren’t always revalued frequently. In March 2020, listed shares fell 20–30%, but many funds marked down property and infrastructure by only 6–10%. A balanced option with a chunk of unlisted assets might report −8% against −25% for pure shares. It feels less scary, but partly because not everything was marked to market. An SMSF that holds only listed assets lets you see exactly what you own and what it’s worth.
And SMSFs are more practical than ever. The number of ETFs on the ASX has almost doubled in five years, so building a low-cost core and satellite portfolio is far easier than when the choices were mostly managed funds.
Part 5: The three-part SMSF portfolio
The best strategies I’ve seen are simple. Here’s an example of a three-part setup:
VDGR, with 30% in defensive assets, is one option some investors close to retirement consider for the core. This structure lets you pursue upside without risking your core, and gives you protection if markets fall. Even if a satellite fails or there’s a major crash, your retirement plan stays intact.
A simple, rules-based ETF portfolio can also reduce behavioural mistakes like constantly switching strategies and overtrading. And the shift is happening: as of 2025, around 12% of SMSF assets were in ETFs, about 315,000 SMSFs held at least one ETF, and 61% of new SMSFs used ETFs, making up nearly a third of their portfolios.
With Australia less than 2% of global markets, staying local limits your opportunities. Going global, through international index funds, listed property, infrastructure and other assets, spreads your bets. It matters even more for satellites: themes like AI, cybersecurity and robotics barely exist on the ASX, but ETFs make them accessible. Even pre-built diversified portfolios have historically left out assets like gold, which is exactly why satellites matter: they capture what the core misses.
Learn how to choose them in How many ETFs should you own? and the base and trend method.
Advisers can help with retirement strategy and structure, but some recommend in-house or affiliated products. Ask how any recommendation is chosen. In many cases a simple ETF-based strategy is more transparent and lower cost.
Part 6: The pillow test
Investing is part art and part science. The goal is a portfolio, process and structure that passes what I call the pillow test: can you sleep at night without worrying about your super?
The aim isn’t the perfect portfolio that maximises returns. It’s a robust plan you’re comfortable with, even in bad times. If that means holding a bit more cash or giving up a few points of potential return to avoid anxiety, that’s okay. Some people can ride out a 40% crash; others panic at 5%. The best portfolio is the one you can stick with. Stress and panic lead to mistakes, like switching to cash in 2020.
Keep it simple, structured and sustainable. Planning your number? Read How much super should you have? or get a free portfolio review.
Watch the full video on YouTube →
General information only. SMSFs carry legal responsibilities, costs and risks and aren’t suitable for everyone. ETFs named are examples only, not recommendations. Figures are illustrative and from the sources and periods mentioned; past performance is not a reliable indicator of future performance. Super, tax and pension rules change and conditions of release apply. Consider your objectives, financial situation and needs, and seek personal financial and tax advice before making super or retirement decisions.
Frequently asked questions
What is the retirement red zone?
The retirement red zone is the roughly five years before and after retirement, when a market fall or a poor decision can do the most damage to your retirement savings, because you have less time to recover and may be starting to draw on your money.
Should I move my super to cash before retiring?
Moving everything to cash out of fear can backfire. Members of a typical balanced option who switched to cash in April 2020 ended up roughly 20–25% worse off by mid-2021 than those who stayed invested. Many retirees instead hold a cash buffer of 1–2 years of living expenses and keep the rest invested.
Is an SMSF cheaper than an industry fund?
It can be for larger balances. A low-complexity SMSF typically costs around $2,500 a year, largely fixed, while a fund charging 1% on $1 million would cost about $10,000. For smaller balances, the costs and responsibilities of an SMSF often outweigh the benefits.
What are the three levers of super management?
Admin and tax structure (such as moving from accumulation to pension phase), investment fees and costs, and investment performance. Many people focus only on performance, but the first two can add tens of thousands with little risk.