A regular pay cheque in retirement

There is a way to uses your super savings to generate an income.

A regular pay cheque in retirement

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.

Useful links:

Help Save Retirement

Find an MLC adviser near you

Seek the financial advice that's right for you

Protect your super with MLC Investment Protection

 

Important information and disclaimer

Sources

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.

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    COMMENTS

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    VicCherikoff
    26th Apr 2015
    9:30pm
    Diversified portfolio of stocks and bonds??? Is that a balanced portfolio which saw huge losses through the GFC? Stocks and bonds can and do fall together. Look at 2008 when they both fell hard. Bonds are not safe nor do they move in opposite directions to stocks. Add to this that 'actively managed' stocks are a gamble at best and you are playing with fire with your super.
    Sure. The funds will tell you that they deliver a great result but calculate their fees and not averaged returns (which are meaningless) but check out the actual returns over say, the last 10 years. The ugly truth is that if your investment drops one year it is hard to recover. Take the GFC where many investments halved. It would take 10 years at 7% return just to get back where you started. The funds lie to you and quote their average annual returns expecting you to be impressed while they fool around with your money. The risk is all yours and the fees are not linked to performance.
    Not Senile Yet!
    27th Apr 2015
    10:50pm
    All very well to talk investing super into annuities etc...But the Average Baby Boomers have not had compulsory Super before the 90's and most (over 50%) have fallen into the downsizing and layoffs from 55-60yrs of age. Most who still have a mortgage are in strife and those that do not struggle to gain further employment!
    Those that have done well are those that retained their employment and added more to their Super....only to have the Government now try to legislate how they can access it and when by changing the rules no less than 20 times in 20 years!!!
    Deeming and Taxation should be removed from all Super as should all taxes!!
    Furthermore all exemptions with regard to Super as well as Salary Sacrificing.....should also be removed!!!
    Furthermore all Super Rules should be the SAME for EVERY FUND...regardless of whether it is a SMF or Industry Fund or MP's Fund.
    The Government wants an equal playing Field ...but refuses to create one for Super!!!
    As for the Pension....for the first 40yrs of my working life I was guaranteed a Pension when I retired BECAUSE I was paying a higher tax rate that enabled the Government to Provide me one!!!
    Then they introduced Super....not because we wanted it....but because they didn't want to pay the pension to ALL the Baby Boomers!!! WHY???
    Because in the 1990's THEY raided the Pension Cookie Jar and SPENT THE LOT!!!!
    They are not broke as they say.....They have more tax than ever!!!
    Mainly from the Children the Baby Boomers produced.....as well as from the Baby Boomers themselves!!! No...they spent it all....playing keep up with the Jones of the World!!!
    We are only 30 Million.....yet our infrastructure.....is equal if not better than Countries that have 300 Million!!!!
    They have mismanaged our Tax since the 1990's by only looking 3-4yrs ahead to the next election!!!! They still are!!!
    Yet they want us to Plan 50yrs in front whilst they change every Rule that was in place every 10 years!!!!
    A house is now not affordable unless two work..just to get the finance....but as they do more and more secret free trade deals.....the average job/employment time is reduced from what was 15-20yrs with one Company to now 3-5yrs !!! And that is if your are under 50!!!
    Inflation double prices every ten yrs...but wages are kept below the CPI.....someone needs to get on down where the workers are and understand that there is no excess to stash into Super!!!
    Cheezil61
    28th Apr 2015
    8:20am
    As per a comments already; if you have not been able to save much super in the first place (as a low income earner struggling with family/mortgage etc commitments over the years, even $200k super at 54 is not going to be enough especially now they will not allow us to salary sacrifice more than $25k per year without penalty -even if it is a bit easier to do now my family have grown up, although I still have mortgage approx the same amount or higher than as 20yrs ago-relationship breakdowns- for the 3rd time leave me paying out a partner to try again to "own" my house outright eventually)... There is not much hope for me, however understand there are plenty of people I know who are much worse off than me... The article, like many is a joke really!
    Pass the Ductape
    2nd May 2015
    10:15am
    Hmmm! The more I get into this Your Life Choices site, the more inclined I am to think it isn't much more than a front for an investment company!


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