What should you do to protect your retirement savings?

Noel Whittaker looks at what action you should take to protect your retirement savings.

What should you do to protect your retirement savings?

There’s much talk of recession in the media so Noel Whittaker looks at whether you need to be concerned and what action to take to protect your retirement savings.

About three years ago, in an effort to simplify some of the major issues for retirees, I wrote my 20 Commandments of Wealth for Retirees.

Because they are timeless, they are as true now as they will be in 100 years.

Number one is: Ignore the prophets of doom – they are always with us and usually wrong.

Number 20 is: Finally – keep in mind that your potential worst enemies can be the media, which focuses on the negative, and well-meaning acquaintances who may give you information that may be half right.

Right now the media is focusing on the fact that there has been negative economic news for the last quarter, and a further downturn in the next quarter will mean we are technically in a recession. The good news is that most economists believe there will be positive growth in the next quarter and that a recession will be avoided.

While the word ‘recession’ may make for scary headlines, the fact is that retirees are among the least likely to be affected. Certainly, a recession may cause greater unemployment, but the upside of that is that building prices may drop and renovations could become less expensive.

Although a recession is most unlikely to affect the amount of your Age Pension – the pension changes that took effect on the 1st of the month are a wakeup call that pensioners should be diligent to ensure that their money works as hard for them as they themselves did during their working life.

Number eight is: Don’t have all your eggs in the one basket – diversify across the major asset classes and certainly have some international exposure.

For starters, you should keep at least three years of planned expenditure in cash where it will be immune from any downturns in the market. Next, at least a third of your portfolio should be in blue-chip Australian shares because even if the market falls, which it well may, the dividends will keep on coming.

And remember, a bonus for holders of Australian shares is that most dividends are franked. This means that for most retirees the dividends are not just tax-free, they carry extra cash in the form of refund of imputation credits.

This is a time when good advice is essential. I appreciate that many retirees are nervous of shares, but the great thing about shares is that you can buy them in small parcels, and sell them in whole or part within five days.

I know there have been duds, such as ABC Learning and Dick Smith, but you can protect yourself by simply buying an index fund. This is a fund that can never go broke, and which is currently paying about 4.5 per cent mostly franked. Just keep in mind that you should have at least a five-year timeframe when investing in shares because history tells us to expect four negative years and six positive years every decade. It also tells us that the index has averaged eight per cent each year for the last 20 years.

Let me finish by reminding you that one of the most important and neglected jobs for our retirees is getting their estate planning in order. This means having a current valid will, arranging an enduring power of attorney and completing an Advance Health Directive, if appropriate.

Noel Whittaker is the author of 20 Commandments of Wealth for Retirees and numerous books on personal finance. His advice is general in nature and readers should seek their own professional advice before making any financial decisions.

Noelwhittaker.com.au

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    COMMENTS

    To make a comment, please register or login
    Rae
    2nd Feb 2017
    10:25am
    Excellent advice and well written. Thank you.
    TMac
    2nd Feb 2017
    12:06pm
    yes indeed, all good stuff

    2nd Feb 2017
    1:16pm
    Great article. Thank you.
    The pom
    2nd Feb 2017
    1:55pm
    Whilst much of the article is OK there is no way I am going to sell any of my blue chip shares so that I can have 3 years cash earning a pittance without franking credits to get a nice tax return. As my wife and myself are well into our eighties and are living a comfortable life I will just hang out. As we don't drink smoke or gamble, we just will hang tough if all the banks go bust.
    Old Geezer
    2nd Feb 2017
    2:26pm
    I think he is talking about super funds where they have to pay out a certain amount each year and therefore should have 3 years in cash so that they don't have to sell at the wrong time.

    However if your dividends are more than enough to live on then for money outside super it is not necessary to have that much in cash. I have 3 to 4 years minimum draw down in cash in my super fund but not nothing like it in cash outside super.
    PAYEdmydues
    2nd Feb 2017
    11:39pm
    In your last 10 years of life do you want to be watching the share market. Having plenty of cash keeps things simple.
    Old Geezer
    2nd Feb 2017
    11:55pm
    Yes I would love to die doing my last trade as I have no intention of lying around just waiting to die. I visited a fellow in hospital in his last days of life and when I went in he was on the phone to his broker placing orders. I really admired him for doing what he wanted not what was expected of him.

    I just love to leave everything invested and then they can all have fun working out what exactly I was worth when I die. By the time they do that then they will have had plenty of time to think about what they are going to do with the scraps I leave behind in this mortal world. There is no fun in leaving it all in cash so they can work it all out in a few seconds.
    Old Geezer
    2nd Feb 2017
    2:34pm
    It always makes me laugh as houses go up and down just like shares but when shares fall everyone sells in panic but hardly anyone sells their houses in such a panic.
    Cheezil61
    2nd Feb 2017
    4:53pm
    Hhmm not all of us have the money for these blue chip Aust shares-or any shares/savings/cash as suggested-then what? (I'm 55 & still going gun-ho trying to pay out the mortgage on my $200k house so nearly every penny of my wage is going towards that just in case employment ceases & I lose the house!) so there's buggar-all left for anything else at moment!
    Rae
    3rd Feb 2017
    8:06am
    Have you considered trying to get a boarder to help pay the bank back faster? I haven't done it yet but my mum ran a boarding house when I was a child and they used that income to pay the mortgage.

    I save quite a bit by ceasing to outsource jobs such as lawns etc and by regularly changing service providers for insurance, electricity billing etc.

    Even when widowed young and with tiny kids I managed to save $1 in every $10 for investment. Gradually over time I paid off the bank and built a decent portfolio.

    I'm doing it again now to replace the income promised but not delivered due to legislation changes. There may be a lot of us doing that and it will slow the ordinary economy down.

    I'm looking into Air b&b as I live in a sought after tourist destination.

    At 55 you have a few decades left and having savings certainly makes that time better as you have the freedom to go and do so much more than a non saver can.
    Nan Norma
    2nd Feb 2017
    5:53pm
    I'm always hearing about blue chip shares, but can someone tell what they are so I can buy some.
    The pom
    2nd Feb 2017
    7:29pm
    Avery old expression meaning shares in solid long established companies with a good record of paying dividends, fully franked if in Australia. Most Banks have records which make them Blue Chip.
    It generally means the buyer intends to keep them as the price volatility is normally low, and the price doesn't fluctuate much so trading them is not on the horizon for most of them. However if one buys them sensibly and holds them for many years the price may rise considerably, but so do the dividends which is why they were bought in the first place
    Trying to make a fortune in the short term on the stock exchange needs a lot of research and time to be able to follow all movements,

    Best of luck to you
    Old Geezer
    3rd Feb 2017
    12:01am
    It doesn't matter what colour they are you still have to tend them like a mother hen and throw out the rotten ones.
    The pom
    3rd Feb 2017
    8:45am
    I have a self developed spreadsheet which I update daily which shows all the information I need to see how each purchase of my holdings is performing with regard to values and percentages. Microsoft used to have a brilliant suite called Money which did all of this and more but a computer crash some time ago caused me to lose the code and Microsoft have stopped supporting the program so I wrote my own
    Rosret
    2nd Feb 2017
    7:54pm
    Why would you set up a power of attorney? Its like saying bye-bye security.
    Why would I set a Health directive? It like saying, "sure pull the plug."
    Until I am non compos mentis I want control of my financial and medical welfare thanks.
    PAYEdmydues
    2nd Feb 2017
    11:33pm
    Should you become ill and incapable of managing your finances i.e. Pay Bills, then whomever has your POA can access your finances to pay your bills. I did this for my mother in her last months on this earth.
    Best of luck.
    PAYEdmydues
    2nd Feb 2017
    11:33pm
    Should you become ill and incapable of managing your finances i.e. Pay Bills, then whomever has your POA can access your finances to pay your bills. I did this for my mother in her last months on this earth.
    Best of luck.
    Watto
    2nd Feb 2017
    11:24pm
    Carefull Cheezil61 If, according to old geezers law you eventually own that house, it will be deemed to be an asset and you will have to sell it and go and live in a tent to qualify for the old age pension.
    PAYEdmydues
    2nd Feb 2017
    11:36pm
    Or live in your house without a pension. Works for me.
    Old Geezer
    2nd Feb 2017
    11:59pm
    Good you have a house. I have no house and no pension. Works well for me.
    Rae
    3rd Feb 2017
    8:11am
    Especially if she is single and can't use the old leave it accumulating and pick up a full pension for a few years trick.
    The pom
    3rd Feb 2017
    8:35am
    I don't understand the bit about owning a house debarring you from an age pension. is this something happened over night? I own my house and draw a small pension.
    Nan Norma
    3rd Feb 2017
    3:41pm
    The Pom, Yes, there is talk again of counting your home as an asset . If its worth more than $450,000. The idea is the government will gave you a pension in return for your house after you die. A bit like a reverse mortgage. They seem to be determine to take everything a pensioner has.


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