Conquering the Fear of Running Out of Money in Retirement

Australia is facing an epidemic unrelated to COVID-19, the flu, or respiratory syncytial virus (RSV).

This issue is called FORO, predominantly affecting individuals in their mid-50s and older who are nearing or have entered retirement.

FORO, the fear of running out of money in retirement, is becoming widespread due to rising living costs, volatile investment returns, and paradoxically, longer average life expectancies.

Also known as longevity risk, FORO is a growing problem characterized by loss aversion—a heightened sensitivity to investment risk out of fear of future losses. This often leads older Australians to favor lower-risk, lower-return assets like cash and to underspend in retirement.

The superannuation industry exemplifies loss aversion, with millions of Australians striving to save as much as possible before retirement, hoping to avoid running out of money once they stop working.

Life expectancy for retirees is projected to increase over the next 40 years, but uncertainty about the extent of this increase poses risks for budgeting and complicates retirement planning, potentially affecting retirees’ standard of living.