It’s a Tuesday morning in March 2020. You check your super balance before breakfast.
It’s down $80,000 from last week.
You’re supposed to retire in four months.
Your coffee goes cold on the bench.
This is the scenario that terrifies every pre-retiree in Balmain. Not the abstract idea of a market crash – but the visceral, personal reality of watching years of work evaporate on a screen before 8am.
But here’s the question nobody asks in that moment of panic: Yes, your balance dropped. But what happened to your income?
The answer might surprise you.
As a Balmain financial planner who guided clients through the COVID crash, the GFC, and every correction in between, I’ve watched this play out dozens of times. And the clients who understood the income story slept far better than the ones fixated on their balance.
Let me show you exactly what happens to your retirement income when markets crash – and why it’s far less catastrophic than the headlines suggest.
When markets crash, two things happen simultaneously – and most people only focus on one of them.
Thing 1: Asset values drop
The market price of shares, property trusts, and other investments falls. Your super balance – the number on your screen – goes down. Sometimes dramatically.
Thing 2: Income distributions are affected – but far less dramatically
Dividends, distributions, and interest payments from your investments are reduced. But rarely by the same percentage as the price drop.
During the COVID crash of 2020:
In other words: The balance took a 35% hit. The income took roughly a 12-15% hit on a diversified portfolio.
That’s still a reduction. But it’s a very different story to what the market headlines suggest.
This is the most important concept in retirement planning, and almost nobody talks about it.
Your super balance is a market value – what someone would theoretically pay for your investments today.
Your retirement income is what those investments actually pay you – dividends, rent, interest.
These two numbers move very differently during a crash.
Think of it this way. Imagine you own a Balmain investment property worth $1.2 million, renting for $800 per week.
Property prices crash 20%. Your property is now “worth” $960,000 on paper.
Does your tenant stop paying rent?
Of course not. The rent keeps coming in. Your income is unchanged.
That’s exactly how income-producing super investments work during a crash. The value fluctuates dramatically. The income – while not perfectly immune – holds up far better.
“Your Retirement Number Isn’t What You Think”
Let me give you a concrete example using a realistic Balmain retiree portfolio.
Super balance: $680,000
Portfolio breakdown:
Total annual income: $33,000/year
Super balance: $459,000 (down 32%)
What happened to income:
Total annual income: $26,240/year (down 20%)
Balance dropped 32%. Income dropped 20%.
Combined with a part Age Pension of $15,000/year, total retirement income is $41,240.
Not ideal. But liveable. And certainly not the catastrophe a 32% balance drop suggests.
Super balance: $790,000 (higher than pre-crash)
Annual income: $36,500/year (higher than pre-crash)
The people who stayed the course didn’t just recover – they came out ahead.
Why does income drop so much less than balance during a crash? Three reasons:
When a share price drops 30%, the company hasn’t necessarily become 30% less profitable overnight.
Markets often overshoot in crashes – pricing in fear, not just fundamentals. A company that was genuinely earning $2 per share in February might still earn $1.80 per share in April.
Its share price might have dropped 35%. Its dividend? Down maybe 10%.
Many quality Australian companies – the big banks, miners, retailers – maintained dividends through COVID within a few quarters of the crash.
A well-diversified income portfolio contains different types of assets that respond differently to crashes.
During COVID:
When some income sources are down, others hold steady or even increase. Diversification is your income’s shock absorber.
“How Your Super Grows Regardless of Market Crashes”
A properly structured retirement includes 12-24 months of living expenses in cash.
This means when markets crash, you don’t have to sell anything at distressed prices. You live off your cash buffer while your investments recover.
By the time your buffer needs replenishing (12-24 months later), markets have typically recovered significantly.
This single strategy – the cash buffer – is one of the most powerful protection tools available to retirees.
Here’s something most pre-retirees don’t realise: a market crash can actually increase your Age Pension entitlement.
The Age Pension uses an assets test. If your super balance drops from $680,000 to $459,000, you may suddenly qualify for a larger part pension than before.
In effect, the government’s own system is designed to partially compensate you when markets crash.
Example:
Your super income dropped $6,760. Your Age Pension increased $6,000. The net income impact? Only $760/year.
The Age Pension acts as a built-in automatic stabiliser for your retirement income. The worse markets get, the more support you receive.
“The FORO Factor: Why Fear of Running Out Keeps Pre-Retirees Awake”
The nightmare scenario: retiring in February 2020, then watching markets crash 35% in six weeks.
Let’s walk through what actually happens to someone who did exactly that.
Graham and Sue, both 63, Balmain. Retired February 3rd, 2020 with $720,000 in combined super.
Worst possible timing.
By March 23rd, their super was worth approximately $490,000. They’d “lost” $230,000 in seven weeks of retirement.
Here’s what actually happened:
Month 1-6: They lived off their $60,000 cash buffer. Didn’t touch their investments. Income from dividends and distributions came in slightly reduced but still flowing.
Month 7-12: Markets began recovering. Their super crept back up. They started drawing from investment income again.
End of Year 2 (Feb 2022): Super balance: $780,000 – higher than the day they retired. Annual income: $38,000 from super plus $16,000 Age Pension = $54,000/year.
Graham and Sue retired at the worst possible time in a generation. They’re absolutely fine.
Because they had an income strategy, not just a balance.
Not all retirement portfolios are equally crash-resilient. Here’s what actually protects your income:
Don’t rely on a single type of investment for your income. A mix of Australian shares, international shares, property trusts, infrastructure, and fixed income means no single crash takes out your entire income stream.
Companies with long histories of dividend payments, strong balance sheets, and essential services maintain dividends through crashes better than speculative stocks.
Commonwealth Bank has paid a dividend in every single year since listing. Woolworths has never suspended its dividend. These boring companies are your income’s best friends.
12-24 months of living expenses in cash or term deposits. Non-negotiable. This is what prevents you from being forced to sell during the worst time.
Having 80% of your income-producing assets in Australian bank shares felt safe until 2008. Sector concentration amplifies crashes. Spread across industries and geographies.
A 10-20% temporary income reduction during a major crash is normal and manageable – especially if you have a cash buffer and some Age Pension.
Planning for this possibility in advance (budgeting for a leaner year or two) is far healthier than being blindsided by it.
If you’re a pre-retiree or recent retiree in Balmain, here’s the scorecard I’d suggest:
Stop watching daily: Your super balance
Start watching quarterly: Your dividend and distribution income
Review annually: Your total income vs total spending
As long as your income covers your spending (or comes close), your retirement is working – regardless of what the balance says on any given Tuesday morning.
The balance will recover. It always has. Your job is to make sure your income keeps flowing while it does.
Before your next market crash (because there will be one), make sure you have:
If you have these five things, a market crash becomes an inconvenience, not a catastrophe.
When the stock market crashes, your retirement income takes a hit. That’s the honest truth.
But it’s a far smaller hit than your balance suggests. Income falls 15-20% when balances fall 30-35%. The Age Pension automatically compensates for some of the gap. A cash buffer covers the short term. And markets recover.
The retirees who struggle through crashes aren’t the ones with less money. They’re the ones who had no income strategy, no cash buffer, and no understanding of how their investments actually generate income.
Build the strategy. Understand your income. Sleep soundly.
Don’t wait for the next crash to find out if your retirement strategy holds up. Get clear answers now.
For $660 (inc GST), your One Page Financial Plan includes:
✓ Your projected retirement income under normal AND stressed market conditions
✓ Your optimal cash buffer amount
✓ How to structure your super for income resilience
✓ 100% satisfaction guaranteed
📧 Email: adam@suncow.com.au
📞 Phone: 0418 785 200
It’s a Tuesday morning in March 2020. You check your super balance before breakfast. It’s down $80,000 from last week. You’re supposed to retire in four months. Your coffee goes cold on the bench. This is the scenario that terrifies every pre-retiree in Balmain. Not the abstract idea of a market crash – but the …
Continue reading “What Happens to Your Income When the Stock Market Crashes?”
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Information provided by Suncow Wealth is general in nature and does not take into consideration your personal financial situation. It is for educational purposes only and does not constitute formal financial advice. Remember, the value of any investment can go down as well as up. Before acting, you should consider seeking independent personal financial advice that is tailored to your needs. Suncow Wealth Pty Ltd is a Corporate Representative No.441116 of AFSL 342766.