Is credit the answer to the retirement income challenge?

Alternative investments like income-generating credit can play an important role in diversifying retirement portfolios.

The success of Australia’s gold standard superannuation system means that retirement income is becoming the hottest topic in wealth planning.

Right now, super alone accounts for $575 billion of retirees’ assets, with over 1.5 million member accounts in the retirement phase. And with 2.5 million Australians expected to retire over the next decade, there’s plenty more of the $4.3 trillion super pool set to flow through into retirement [1].

Investors are approaching retirement with increasingly substantial super nest eggs. So after their last pay cheque goes in from their ‘active’ income, their ‘passive’ investments will need to do the heavy lifting and deliver a regular and reliable income stream that maintains their lifestyle – year in year out – as well as lasting the distance in retirement. It means they may need to start thinking about investment income in a different way.

How to keep SMILEing in retirement

These new retirees face a variety of investment-related risks that have been dubbed SMILE risks – some new, some familiar.

The market and emotional risks are still there – the usual vagaries of investing in equities.

Inflation risk is also familiar but there’s a particular cost-of-living challenge for retirees who may traditionally have relied on low-risk, low-return investments. Over the past two decades the cost of a comfortable retirement for a couple has risen by more than 75% to $76,505, outpacing rising living costs, with the CPI increasing by 66.4% over the same period [2].

And bear in mind these numbers are conservative. Even a ‘comfortable lifestyle’ only involves an occasional restaurant outing and overseas trip once every seven years. Most advisors out there will have retiree clients who’ve set their sights a little higher – more French Riviera than NSW Riverina.

Rising inflation means retirees’ traditional derisking strategy may not be advisable if they want to maintain their spending power. They may need to find new ways to generate an investment income and move up the risk profile spectrum to avoid drawing down and depleting their retirement funds.

One new challenge for retirees to get their heads around is longevity risk.

Life expectancy has transformed retirement expectations over the past 100 years, despite a recent COVID-induced blip. An Australian baby boy born in 2021–23 can expect to live to 81.1 years and a girl to 85.1 years, compared to 51.1 years for males and 54.8 years for females born in 1891–1901. And if you’ve already made it to late middle age the picture is even rosier. Australian men aged 65 in 2021–23 could expect to live another 20.1 years, and women aged 65 could expect to live another 22.7 years [3].

It’s wonderful that we’re living longer and healthier lives than ever before. But it means our retirement portfolios need to perform two functions – generate an income that delivers a quality lifestyle and last the distance through the early more active retirement years into our old age.

And finally there’s sequencing risk, where a bad year early on can deliver a serious blow to retirement investment portfolios. Income is key to combatting sequencing risk – if your assets are delivering a regular income, it means you don’t need to draw down on your savings and you can ride out market fluctuations more easily.

Beyond the usual asset suspects

Despite the clear need to diversify their income streams, many retirees are still focused on traditional asset classes.

For years, negative correlation was part of investing 101. Investors could rely on the traditional inverse relationship between stocks and bonds to diversify their portfolios and continue delivering an income stream.

When bonds were down, dividend-producing equities were up. And when equities were down, bond coupon payments could take up the slack.

But in recent years there’s increasing evidence this is no longer the case. When the Reserve Bank of Australia started raising interest rates to fight inflation in 2022, the prices of stocks and bonds fell simultaneously.

Turning to bricks and mortar

Retirees therefore may need to look for alternatives to the usual asset class suspects. When many investors think of alternatives, gold ingots, collectibles (wine, art, even footy cards) or even the relative Wild West of crypto might immediately spring to mind.

But not all alternative assets are so esoteric.

Real estate is one alternative asset class that can provide investment opportunities. Those looking at an investment property for rental income might consider that the average national gross rental yield in November 2025 was just 3.58% [4]. This is before factoring maintenance, property fees and mortgage repayments of course.

Other forms of exposure can be gained via listed REITs, which offer regular distributions and liquidity, or unlisted property funds offering potentially more stable exposure to all sorts of residential and commercial real estate.

But there’s another way to tap into Australia’s $2.4 trillion mortgage market – income-generating credit funds that package up debt into different forms of securities. It’s a growing part of the market for investors looking for regular income and capital security in the form of an alternative to traditional fixed income that can offer higher potential returns.

Looking under the hood

The world of credit is far from homogenous. Some credit funds are exposed to property development finance. Some are highly leveraged. And others are heavily exposed to offshore real estate in less tightly regulated markets.

So it’s important to look at the underlying assets to know exactly what you’re invested in. At RAM, we source secured Australian property credit through our non-bank lender Brighten, which originates the loans.

So why do we like this type of credit? Unlike some other credit funds, our investors aren’t exposed to offshore or development finance with looser lending standards and higher risk of default.

It means we can maintain high lending standards – Brighten’s average loan-to-value ratio is below 65% and arrears are comparable to or better than the major banks.

It means we can exert full end-to-end control over risk management.

And it means we can adjust the asset mix to deliver liquidity to investors within days – for example, by holding around $300m a month of first mortgages for up to two weeks before securitisation.

Over its eight years of operation, Brighten has underwritten 10,000 loans and never experienced a loss, allowing our unlisted credit funds to deliver the kind of regular income stream that retirees value, with zero capital losses and no drawdowns.

Investors can access Australian property credit through our unlisted Real Income Fund and our newly listed RAM Secured Income Notes (RAMHA).

The case for alternatives

The case for alternative investments like credit in retirement is persuasive.

• They can diversify portfolios from traditional asset classes and protect portfolios against market fluctuations, reducing overall risk.
• They can help to generate a predictable and stable income to add to retirees’ sources of income, such as a part-pension or an annuity.
• And they can provide a bulwark against inflation to maintain spending power.

Alternative assets can provide access to investment opportunities retirees may not get elsewhere – like income-generating, secured Australian property credit.