It’s common for older Australians to feel anxious about running out of money. After all, you’re particularly vulnerable to shocks as a retiree because the pool of money you’re drawing from isn’t benefiting from regular top ups by an employer. Below, we outline some of the biggest threats to your retirement savings, as well as what you might be able to do to keep your finances safe.

Inflation risk

As far as threats to your savings go, inflation is one of the more obvious and pressing. Even a modest increase in the cost of goods can cause the value of your retirement funds to drop over time.

And if recent history has taught us anything, it’s that inflation can persist for long stretches despite efforts by central banks to bring it under control.

When your retirement savings are finite and you’re no longer earning, it’s more important than ever to use smart strategies to manage inflation risk and protect your savings from being eroded.

Tips to help manage inflation risk:

• If high inflation strikes, try to be flexible with your spending habits and try to identify any non-essentials that you can do without.
• Don’t let your panic guide your investment decisions. Seeking out risky assets or industries in the hope they’ll allow you to beat inflation might not be the wisest decision.
• Top up your retirement savings if you can with extra contributions to super.
• Consider delaying your retirement plans or supplementing your income with part-time or casual work.

Market downturns and sequencing risk

Anyone with shares they actively monitor will know that volatility is a feature of the market that’s next to impossible to avoid. But if your only exposure to investing is through your super, you might not have built up a tolerance for the large market swings that many individual traders have.

Often people are so rattled by a downturn that they switch over their portfolios to more conservative options and unwittingly wind up crystallising their losses. Then when the market recovers, their super balances are worse off than if they had done nothing instead.

The stakes are especially high as you approach or enter retirement thanks to something known as sequencing risk. If you retire in a down market, you’ll be drawing down on your capital at a time when its value has fallen. This deprives your investments of the chance to recover, erases any future compound returns, and can potentially impact your super balance over time.

Tips to help deal with market downturns:

• Try to avoid making any hasty decisions in the face of market downturns.
• Take care not to mistime any big purchases. Many new retirees withdraw part of their super as a lump sum to pay off their mortgage or buy a new car. If this coincides with a market downturn, it could put a major dent in your super balance over time.
• Review the investment option your super is currently invested in to make sure you’re comfortable with the level of risk.
• If you have investments outside super, ask yourself if your portfolio is sufficiently diversified and suited to your risk profile.

Longevity risk

Thanks to better quality medical care and a general improvement in living conditions, life expectancy in Australia is much higher than it used to be. While this is certainly welcome news, it means you’ll have to stretch your savings over a retirement that could last as long as 30 years. Combined with the impact of inflation, you’ll really need to consider whether your retirement savings can go the distance.

Tips to avoid outliving your retirement savings:

• During your working years, try to make extra contributions to your super where possible. You can even claim a tax deduction if you submit a Notice of Intent form to your fund in time.
• Consider delaying retirement or returning to the workforce on a part-time basis so you have a chance to boost your savings further.
• Create a retirement budget to see how you can cut back on your living expenses before and after retirement
• Check if you’re eligible for other sources of income in retirement, such as the Age Pension.
• If you planned on giving your children an early inheritance, be mindful of how it might impact your lifestyle in retirement.

Medical costs

As you age, the amount of money you devote to medical costs tends to go up. Along with the regular expenses (such as medication and visits to the dentist), you might also experience health problems that require visits to specialists, surgery or overnight hospital stays. There’s also the matter of aged care (whether a residential aged care facility or in-home care), which can be a major blow to your budget.

Tips to help keep your medical costs low:

• Remember that the best cure is often prevention — try to live a healthy lifestyle and make sure to visit your GP regularly to get preventative screening tests done.
• Maintain an emergency fund to help cover any unforeseen medical expenses.
• Use the government’s Medical Costs Finder to get a clearer idea of the typical out-of-pocket costs for any surgeries or visits to specialists.

Scams

For many scammers, cashed up retirees represent the ultimate target, and fooling just one person can result in a massive payday. It’s important to remember that scammers don’t have to rely on digital hacks — sometimes all it takes is a message that’s just friendly or urgent-sounding enough to get you to lower your guard.

Tips to stay safe from scams:

• Be sceptical of any messages you receive that try to rush you into doing something — like changing your password or moving money from one account to another — even if they purport to be from your bank or another trusted institution
• Be wary of people who contact you out of the blue to strike up a conversation, especially if they start asking for money to get out of a bind or spruiking investment opportunities.
• Keep in mind that there are strict rules around accessing your super before you’re eligible, so don’t trust strangers who claim to be able to help you withdraw it early.
• Often scammers impersonate well known organisations, such as your super fund, the ATO or a utilities provider. The safest way to check whether a communication you receive is authentic is to contact the organisation using the published phone number on their website and ask them whether they have contacted you.

Already, the technology is being used by cybercriminals to swindle people of their money, and the methods they’re using are getting increasingly difficult to detect.

Below are some of the ways AI is being deployed and what you can do to help keep your finances safe.

“Voice cloning” technology used in phone scams

Using just a short audio sample and some commercially-available programs, it’s now possible to clone someone’s voice and prompt it to say anything you want. Fraudsters have jumped at this opportunity, using AI-generated voices used to impersonate relatives of victims and leaving messages urgently requesting money to get out of a bind.

These scams can be surprisingly difficult to see through. A global survey by McAfee found that 70% of people had trouble distinguishing between a cloned voice and the real thing.¹

Scammers are setting their sights on much larger targets too. In 2020, a manager in Hong Kong received a call from someone using deep fake technology to simulate his boss’s voice. The call was so convincing that he wound up transferring USD 35 million to fund a bogus acquisition deal.²

Similar tactics were used against the CEO of a UK-based energy firm, who was duped into sending $243,000 after speaking to a deep fake imposter.³

Generative AI used to gain victims’ trust

Malicious actors can now use language models like ChatGPT to polish up the messages they send to potential victims. All the usual giveaways — typos and missing punctuation — can be mended, giving things a more realistic (and potentially persuasive) sheen.

Romance scams are also bound to receive a shot in the arm. With AI, a scammer can generate original images to use on dating profiles and social media, potentially making it easier to win someone’s interest and trust.

Once a victim is invested in the ‘relationship,’ scammers will start asking for money, gifts and bank details. They might even get the victim to perform tasks that amount to money laundering on their behalf.

On the more extreme end, deepfake video technology can be used to recreate prominent figures’ likenesses against their will. A recent example involved CommBank CEO Matt Comyn, whose image was digitally replicated and used to shill an investing website.⁴

Ways to protect your finances

The reason so many of these scams work is because they succeed in creating a heightened emotional state in victims. Fraudsters assume that the more distressed or excited people are, the less guarded they’ll likely be with their money.

Fortunately, many of the usual methods for protecting your finances can still apply:

• Be wary of texts, emails or calls that seem crafted to create a sense of urgency. Keep a cool head and try to verify if the message has come from a legitimate source.
• If you receive a message from your bank asking for login details or other personal information, take it with a grain of salt.
• It’s common for scammers to request payment via channels that are hard to trace and difficult to recover money from, such as gift cards and cryptocurrency, so consider any mention of these a potential warning sign.
• Set up multi-factor authentication if you haven’t done so already.
• Exercise caution when discussing your finances over the phone, even if you believe it’s your child or grandchild on the other line. If at any point you become suspicious, put the call on hold and ring them yourself.

Australians lost a record $3.1 billion to scams in 2022,⁵ and that figure is poised to grow as AI use becomes more widespread. Scammers can target anyone, no matter how tech-savvy they are, but awareness of this new breed of scams can go a long way.

Sources

1 https://www.mcafee.com/blogs/privacy-identity-protection/artificial-imposters-cybercriminals-turn-to-ai-voice-cloning-for-a-new-breed-of-scam/
2 https://www.forbes.com/sites/thomasbrewster/2021/10/14/huge-bank-fraud-uses-deep-fake-voice-tech-to-steal-millions/?sh=545c8b0b7559 
3 https://www.forbes.com/sites/jessedamiani/2019/09/03/a-voice-deepfake-was-used-to-scam-a-ceo-out-of-243000/?sh=499b2abc2241 
4 https://www.afr.com/companies/financial-services/cba-jostles-with-ai-generated-matt-comyn-scam-20230615-p5dgtx 
5 https://www.scamwatch.gov.au/news-alerts/accc-calls-for-united-front-as-scammers-steal-over-3bn-from-australians