Investment strategies and common mistakes

Don’t make the mistake of converting all your assets to cash on the day you retire.

Investment strategies after retirement

Let me ask two seemingly unrelated questions. How long do you intend to live after you retire? It could be nearly 30 years. What kind of assets should a 35-year-old invest in? ‘Secure’ type investments such as bank deposits, or growth investments such as property and shares?

Naturally, your answer to my second question will be growth investments because 35-year-olds probably have 30 years before they retire. But can you see the connection between the two questions? It illustrates the fallacy of most retirees believing they should be moving all their superannuation funds into non-growth assets on the day they retire.

Retirement means that you leave your permanent job and spend your time doing what you want to do, not what your boss says you have to do. Of course, you are hoping to live on the income from your investments and whatever government benefits are available. The higher the return you can achieve, the longer your money will last, and the better you will be able to live.

Don’t make the mistake of converting all your assets to cash on the day you retire. You may live for 30 years or more.

Think about a person who retires at age 60 with $300,000 in an account-based pension fund. If he draws the minimum pension, $15,849 to start, and increases it by four per cent per annum to keep up with inflation, his money will last till age 85. This is based on an average earning rate of seven per cent. The total pension paid in that time will be $715,000.

Look what happens if he places part of his account-based pension in more growth-orientated areas and manages to earn nine per cent overall. His pension will last to age 90 and total pension payments would be $1,029,394. The total payments are so much more because the faster-growing balance forces him to draw a bigger pension. For example, at age 80 he is drawing $40,259 a year instead of $36,374.

This is not to suggest that retirees should rush out and put their whole portfolio into the share market. However, it does show the fallacy of regarding your retirement date as the time to quit all growth investments. Provided you keep at least three or four years’ planned spending in the secure area, you can afford to go for conservative growth with the rest.

An extract from: Superannuation Made Simple, Noel Whittaker’s guide to all things superannuation.

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    COMMENTS

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    10th Jul 2019
    10:25am
    Depending on your outlook on life - would you rather spent a larger amount now when fit and able or have a big pile of money in your 80s which the authorities might take off you when it is time for the nursing home. I saw it happening, people with no assets get housed for free and the people with money will lose it as they have to pay for their own nursing home. Look at the cruise industry - all my previous fellow passengers were past 60 years old, same as myself.
    Anonymous
    10th Jul 2019
    6:22pm
    not everyone can "get" into a nursing home when they need it...if you have the funds you may have a better chance...relying on government to get it free...well....good luck with that.
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    10th Jul 2019
    10:53am
    "Retirement means that you leave your permanent job and spend your time doing what you want to do..."
    Under the watchful eye of Centrelink....the way things are going these days I will be to scared to spend anything except on my bills and groceries and a visit to the opp shop every now and again!
    Anonymous
    10th Jul 2019
    11:15am
    Wrong attitude, grumpyoldwoman, spend your pension on things you like. Going to thrift shops as well from time to time. I know too many oldies who are too careful about spending money on themselves. Centrelink has a job to do and it monitors my part pension from overseas, currency fluctuations change the amount every month and once a year C/Link send me a list of the past 12 month's inflows. Never had any problems with them.
    Rosret
    10th Jul 2019
    11:19am
    Yep. - except if you save too much they will find a way to tax it.
    So fix everything around the house now for the long haul as it won't get any cheaper in the future.
    Anonymous
    10th Jul 2019
    11:31am
    Rosret - did exactly that around the house, new hot water service (made in Australia), new fans, serviced the air conditioner. New heat lamps in bathroom and outdoor lighting. Gets rid of quite a bit of money and the GST is very visible. Do not see it mentioned often when shopping, there it is included in the price. They should remove it from the electric bills for us oldies I think.
    sunnyOz
    10th Jul 2019
    1:05pm
    Rosret - yes, did that in the last few years I was working, and before I went on Aged Pension. New security fences, roof redone, new lining for pool, new stove, 2 air conditioners, new stove and washing machine.
    Am glad I did it beforehand (took a little bit out of super, worked a 2nd job). After going on pension, I sold my big car and caravan, bought a smaller more economical car, then needed to build a carport. Notified Centrelink - who then demanded they see receipt for carport. I said no - that is none of their business, and as I was well under the rate for deeming, strongly object to this big brother. They didn't push the issue after I said no.
    Karl Marx
    10th Jul 2019
    11:39am
    Agree Cowboy Jim about nursing homes etc. Hopefully I'll never need one but if I do I'll spend like there's no tomorrow lol.
    Anonymous
    10th Jul 2019
    6:20pm
    even if it costs $450K to go into anursing home of your choice your estate will get it back without any interest...but you do get the bond back..you do not lose it!

    10th Jul 2019
    2:35pm
    I'm looking after the house hot water, sewerage etc., the front fence is threatening to fall down as I type, but the rest off our meager savings are there "just in case" my hubby needs to go into aged care in the future. I just don't trust the Government anymore, they keep moving the goal post so I stay "ready" for anything....and hopefully have enough....if I am the last to go I don't really care what I have to live on, I am happy enough knowing I did the right thing by hubby and that's that...no family to worry about so....I will just buy myself a comfortable recliner and watch all the movies I haven't had time to see over the years and put the oven into retirement and get meals delivered....maybe!:)
    floss
    10th Jul 2019
    3:24pm
    My Industry Fund is making more money for us than when I was working.It has also allowed us to stay away from C/Link which gives me great satisfaction.
    Anonymous
    10th Jul 2019
    3:37pm
    May it last, floss, ours was like that as well before the GFC. Thought ourselves safe from all future problems. The big boss said: "you never need to go to C/Link you have enough" but that was in 2005 and things indeed looked good, and the wheels came off!
    Just watch house prices bloating again and people not being able to make repayments and we will be there again. We were in a State Govt super fund - do not take anything for granted.
    Anonymous
    10th Jul 2019
    6:23pm
    agree with you Floss...make more money than when was working with my industry fund too
    Sampancho
    10th Jul 2019
    7:25pm
    Can someone please tell me how I can safely earn 7% or 9%, so I can follow Noel Whittaker’s retirement strategy.
    Karl Marx
    10th Jul 2019
    8:36pm
    Ask Old Geezer he has ALL the answers to everything
    sunnyOz
    10th Jul 2019
    9:53pm
    OlderandWiser - you took the words right out of my mouth!
    Farside
    11th Jul 2019
    11:32am
    ask YLC or even better Noel Whittaker, it's his model so he must be able to support his scenarios, mustn't he?
    Sceptic
    12th Jul 2019
    2:48pm
    Very good question Sampancho, as the often-quoted long term earnings in super is 5%. This takes into account the various crashes every 12 years or so. Methinks that Noel Whittaker is somewhat overquoting the long term earnings in a super fund. Even more so when it is imperative to keep a higher amount in cash when not having regular paid employment to carry through the bad years during and after a crash until the capital has recovered.

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