Investors have had a tough time of it recently with higher than normal share market volatility and historically low cash rates. Other factors, such as changes to the government Age Pension rules, mean many retirees may be considering whether or not their investment strategies need to change to adapt to this new environment. Add in the fact that we may all be living longer than ever before, and it’s no wonder that people are looking hard at how they will be able to stretch their savings over the long haul.
Fortunately there are a range of solutions and innovations in the market to help retirees through this. Here are our five best tips for investing in retirement.
1. CONSIDER PUTTING YOUR SUPER IN AN ACCOUNT-BASED PENSION
An account-based pension provides retirees with an income stream, as well as the flexibility to invest their super in a diversified mix of assets. This means you continue to enjoy investment returns, while also being able to draw down on your super in a flexible way to meet your spending needs in retirement.
If you are offer 60, both the investment returns and the income you draw down are typically tax-free, however the income and value of your pension may be included in the means tests used to access government benefits (such as Age Pension eligibility). Most superannuation funds provide these accounts, so contact your super fund, talk to your financial adviser or do some research on the internet to better understand your options and choose a solution that is the best it for your own circumstances.
2. AVOIDING AN INVESTMENT LOSS EARLY IN RETIREMENT
Imagine you have $500,000 in super and you want to draw an income of $30,000 each year for the next 20 years. Say the market falls by 20 per cent in the first year of retirement, causing your pension balance to fall to $400,000. If you drew $30,000 from this amount, then it might make it difficult for your account balance to recover. However, if this loss occurs later in your retirement, for example when you have only $30,000 left in your account/pension, then the impact will be much less severe.
Picking up on this potential issue, investment specialists have developed smart strategies to lower both the risk and impact of large investment losses. For example, many offer solutions that preserve your capital as a safeguard against large market falls. Others can profile your future income needs and help you create a diversified portfolio that shields against significant losses in early retirement. Talk to your financial adviser about what strategies will work best to help safeguard your financial future.
3. PLAN TO LIVE FOR A VERY LONG TIME IN RETIREMENT
The good news is that most of us reading this article can expect to live well into our 90s. The challenge is that we will need a bigger pot of super savings to make sure our money doesn’t run out in our later years.
One option is to work for longer than you may have originally planned. Not only will it help keep you mentally and physically it, it may also provide you with valuable income and keep your super savings pot ticking over or at least keep you from digging into precious savings. This doesn’t necessarily mean slaving away at the same job forever. It might mean simply reducing your hours or finding work that better suits your changing needs, provides social stimulation and incremental income. While the age pension will provide an important safety net for many retirees later in life, there’s no doubt that building private savings will provide you with a better quality of life and greater financial security in your later years.
4. TAKE CONTROL AND ARM YOURSELF WITH THE TOOLS YOU NEED TO RETIRE WITH COMFORT
Arming yourself with the information you need to meet the challenges of planning and managing your retirement finances will help make the process less daunting. Luckily there are a number of new digital tools emerging which help to improve your knowledge of superannuation,retirement and investments, such as online courses, fact sheets and quizzes. Knowledge is power, so give yours a boost to ensure you are well-equipped for the task ahead.
There are also more sophisticated tools and calculators out there for those who want to delve deeper. For example, there are tools that can give you an assessment of your investment risk tolerance, those that project how long your super savings will last and others that can help you make decisions about your budget and future financial needs. The level of information provided ranges from beginner to expert, so make sure you try before you buy. The Australian Securities and Investments Commission (ASIC) provides a lot of education via their MoneySmart website (moneysmart.gov.au) or check out the independent SuperGuru website (superguru.com.au) When it comes to self-directed investment, providers are beginning to offer solutions that offer the benefits of control and ownership, but that outsource the investment expertise to a highly-skilled investment team, such as BT’s Go Invest (btgoinvest.com.au).
5. DON’T BE AFRAID TO ASK FOR HELP FROM A FINANCIAL ADVISER
Financial advisers can make a significant difference to your future, especially at key points of change in your life. Financial advice service models are changing to meet the needs of retirees, so you should be able to find a service that works for you whether that is a full service offer or just a few one-off pieces of advice. You can get started by looking for online financial adviser ratings websites, which can help you locate an adviser, see qualifications and review feedback from their clients. BT’s AdviserView is a good start (btadviserview.com.au). Like TripAdvisor for planners, it contains details of hundreds of planners in the Westpac Group, and clients are able to provide unfiltered feedback which is open to members of the general public. Simply pop in your postcode and you will be able to check out what advisers are nearby and how their clients rate them.
Remember that everyone’s retirement journey will be different, so take the steps you need to turn your retirement dreams into a reality.
Melinda Howes is General Manager, Superannuation with BT Financial Group. BT Financial Group is one of Australia’s leading wealth management organisations. We strive to delight our customers through providing innovative products and services to help manage, preserve and create wealth. Our offering includes investment,superannuation and retirement income products, investment administration services, financial advice, private banking and insurance solutions across some of Australia’s most trusted and respected financial services brands.
This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs.