Is now the time to risk your retirement savings?

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While super funds slogged it out over the 2018–19 financial year, most somehow managed to post solid returns for the year – some not far off double digits.

However, according to SuperRatings, those who did enjoy moderately positive returns in the face of such adversity should not be complacent.

“High returns are not a free lunch – consumers should understand risk,” says a SuperRatings report.

“Most consumers can’t define risk, but they know it when they experience it. For superannuation members, risk can mean the likelihood of running out of money in retirement, or not having enough cash to pay for holidays, car repairs or an inheritance for their kids.”

While riskier assets may benefit younger workers with relatively low super balances, for fund members approaching retirement (aged 50 and over) being exposed to these same risks when the market goes south can be the difference between living comfortably in retirement and having to cut back just to get by.

However, given the current climate of low interest rates, loss of value in property, among other perils, some risk may still be favourable, even for pre-retirees.

“While measuring risk can be tricky, it’s essential to understanding the value that members are getting from their fund,” says SuperRatings.

“The conversation around risk will become increasingly important as a greater number of people begin transitioning to retirement and drawing down on their super.

“Risk can be measured as the degree to which returns fluctuate over time. Members want high returns, but they also want consistent returns. Unfortunately, higher returns often mean taking on more risk, which means returns will be less consistent.”

Those approaching retirement may wish to remain in conservative fund options. However, the table below shows the top 10 funds for those prepared to take on such risks.

Low interest rates, deeming rates outstripping any benefits from investment returns, property market slumps and the threat of recession have many retirees in a quandary about how to best defend themselves against losses, and some even thinking that now may be a good time to take risks ahead of downturns. YourLifeChoices asked SuperRatings executive director Kirby Rappell for his thoughts on how retirees and pre-retirees should tackle what’s ahead.

When would be the ideal time for a pre-retiree to switch from high-risk investments to a more conservative option?
Typically, the key message for pre-retirees is that everyone will have different needs, and so it is about building their long-term strategy. We are seeing an increase in uptake of advice and this can add value in terms of preparing a strategy. More generally, after the age of 45 or so, we see life cycle funds typically and gradually reduce some exposure to growth assets, but there is no uniform approach across the market. The key challenge is to ensure there is sufficient certainty of income for retirees, while also ensuring enough exposure to growth assets to allow nest eggs to generate sufficient returns. Advice is key here to ensure any approach is tailored to the particular needs of members.

Should more retirees/pre-retirees consider switching to higher risk options, given the current climate of low interest rates, property slump, etc?
Risk and return are intertwined. Higher returns come with higher risk. While retirees will be searching for reasonable returns, we are sitting in a low return environment at the moment, particularly around interest rates. While some extra returns can be possible, people may also be exposing themselves to a bumpier ride and the risk of a larger drawdown on their savings if markets fall. For many retirees feeling the sting of lower returns, the unfortunate reality is that they can ill afford a drawdown on their savings.

Any other advice for those approaching retirement (say, over 55s)?
The ups and downs in the market underline the fact that people need a long-term strategy. If well-planned, well set up, and supported by appropriate advice, strategies should help people deal more appropriately with, or be less influenced by, short-term market noise. Timing the markets is not expected to be a good strategy, but the ability to focus on long-term planning and conducting reviews each year in order to track progress will help make the ups and downs easier to navigate.

Any other advice for those already in retirement?
It is a challenging time for retirees at present, with pressures on income and a lower return outlook. There are, unfortunately, no easy fixes here and sticking to a robust long-term strategy, while hard, remains the best approach.

Do you take risks with your super? Does it pay off for you? What advice would you give to our members who have already retired but may be suffering from low interest returns?

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Written by Leon Della Bosca

Leon Della Bosca is a voracious reader who loves words. You'll often find him spending time in galleries, writing, designing, painting, drawing, or photographing and documenting street art. He has a publishing and graphic design background and loves movies and music, but then, who doesn’t?



Total Comments: 9
  1. 0

    Best idea is to split your investments .Old story never have all your investments in one area.

    • 0

      I think the idea is those with lack of discretionary cash to ‘split their investments’… those with super only are most at risk…

  2. 0

    Leon: consider that we appear to be approaching the end of a never ending bull run. Add to that the fact that those in the know are moving to cash (have been for some time) and now gold.
    There’s something brewing and one pundit who studies cycles claims that we are in the “last blow-off” stage. Yes Super has been doing well since the GFC passed but nothing goes on forever. Not even life. Look at the returns of super funds for the 3 years AFTER the GFC to get an idea of the downside.
    Investing is a real roller coaster ride and you have to not be conned into doing exactly the wrong thing at the wrong time. The media sucks people into exactly that every time. I suggest investors follow the herd in the know. Better to lose afew dollars than lose a nest egg.
    Good luck all. Its a hard game.

  3. 0

    I suppose the answer depends on where one sits in the cycle of life. While I was working I chose an aggressive outlook and had most of the funds in growth because my income was what I lived on and super was not available. My outgoings were low and if there was a shortfall I was able to adjust through savings. The GFC had a big hit on my super, as it did to most others and at the suggestion of my financial adviser, I stayed with the growth fund which recovered just as quickly as the safer options but at a higher rate. It took some time to break even and the super rose from there.

    Now I am in a retirement phase and living off a part of my super so my choice is more conservative. I no longer have the ability to top up any shortfalls so I have chosen the safe option which doesn’t give a great return but in the event of another adverse event will fall less than an aggressive stance. I suppose that all of my choices have been made by following the advice of a good financial adviser and I’m pleased with the end result.

  4. 0

    Put majority funds in high risk investments like Aussie shares or international shares, however, keep cash to cover 2 years living expenses. When crash happens, switch drawings to cash and leave equities to recover. This has worked for me in the past. Good luck!



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