The last thing you want to worry about in retirement is money. So it’s unfortunate that almost half of Australian pre-retirees over age 40 expect to do exactly that.1 But can you really blame them?
Australian retirees were the hardest hit by the global financial crisis (GFC). An astonishing 41 per cent watched their retirement income shrink by half, considerably more than in the United States (16 per cent) and the UK (24 per cent).2
Market plunges like the GFC don’t happen often, but if they occur when you’re drawing down on your super, they can have a huge impact on your retirement savings.
But money concerns don’t have to be your reality in retirement. Here’s one smart way to ensure a steady income throughout the third phase of your life.
You don’t need to lose sleep over money
One solution is to generate an income to help pay your bills by investing your super into an account based pension with a protected income benefit. These products pay a regular income for either 10 or 20 years, or for the rest of your life. They provide the comfort of knowing you will receive a minimum amount of income at set times, even if the market performs poorly.
You get to choose how long the payments will last – either for the remainder of your life or a fixed number of years – making it that bit easier to sleep at night.
The best of both worlds: allocated pensions with protected income benefit
When you choose a Protected Income benefit, you are exposed to a diversified portfolio of shares and bonds, but receive a regular income payment (10 per cent pa over 10 years, 5 per cent pa over 20 years, or 5 per cent pa over your lifetime), regardless of how investment markets perform.
Depending on what suits your needs, the regular income payments can be monthly, quarterly, every six months or annually.
If your underlying investment goes down, your payment level is maintained. If your underlying investment increases, then your minimum payment level can increase – and stay at the higher level.
They provide a lot more certainty and peace of mind than an account-based pension that does not have a protected income benefit.
How much can you expect to receive?
An account-based pension with protected income will ensure you will be paid at least:
- 10 per cent pa every year over 10 years.
- 5 per cent pa every year over 20 years.
- 5 per cent pa every year for the rest of your life if you start receiving income payments after age 65. If you receive payments prior to 65 payments will be 4 per cent
The overall performance of your investment will be determined by the investment option you have chosen. The account balance will vary based on investment markets. If the investment markets increase, then each year these products lock in the same percentage of the higher account balance – effectively providing you with a higher income for the rest of your term. Of course, if the underlying investment falls, your income level does not. You will be secure in knowing your minimum income payments.
Important information and disclaimer
1 Investment Trends, Retirement Income Report, November 2013, Volume 1
2 HSBC, Future of Retirement, Sept 2013
This article is intended to provide general information only and has been prepared by MLC Limited ABN 90 000 000 402 (AFSL number 230694) without taking into account any particular person’s objectives, financial situation or needs. Investors should, before acting on this information, consider the appropriateness of this information having regard to their personal objectives, financial situation or needs. We recommend investors obtain financial advice specific to their situation before making any financial investment or insurance decision.
Any advice in this communication is of a general nature only and has been prepared without taking into account your objectives, financial situation or needs. Before acting on any advice in this communication we recommend that you consider whether it is appropriate for your personal circumstances. Any tax estimates are intended as a guide only and are based on our general understanding of taxation laws. They are not intended to be a substitute for specialised taxation advice or a complete assessment of your liabilities, obligations or claim entitlements that arise, or could arise, under taxation law, and we recommend you consult with a registered tax agent.
MLC MasterKey Investment Protection
We may need to change the protection features even after you’ve started your investment protection. MLC MasterKey Investment Protection is a feature of MLC MasterKey Super & Pension Fundamentals and is issued by MLC Nominees Pty Limited ABN 93 002 814 959 AFSL 230702 RSE L0002998, as trustee of The Universal Super Scheme (ABN 44 928 361 101). You should obtain a Product Disclosure Statement at mlc.com.au/pds/mkspf or by phoning 133 652 before making a decision to invest in this product.