Retiring last month with $500,000 in superannuation and $300,000 in the bank, many face the dilemma of how best to manage these funds. The decision to use the super pension for income while keeping cash in the bank raises concerns about potential sharemarket crashes and the subsequent devaluation of superannuation.
Concerns about market volatility are understandable, especially upon retirement when savings are at their peak and expected to last for decades. The fear of a sharemarket crash is particularly acute at this stage, as adverse market outcomes can significantly impact financial security.
Exploring Investment Options Within Superannuation
Fortunately, super and pension funds offer a variety of investment options, ranging from secure to aggressive. This flexibility allows retirees to strategically allocate their funds to mitigate risk while ensuring income.
One strategy is to maintain some cash in the bank for immediate needs and then deposit the remaining superannuation, being mindful of contribution limits. By creating a larger pension account, retirees can diversify their investments within the account itself.
Strategic Allocation for Stability
Dividing the pension account into multiple investment options can provide a buffer against market corrections. Retirees are advised to keep at least a year’s worth of cash in a low-risk account and consider conservative options such as term deposits offered by some funds. The remainder can be placed in balanced options or further diversified.
“The goal is to hold low-risk options that are unimpaired by a market correction. Then, you can live off these holdings for several years, providing your remaining savings with plenty of time to recover.”
This approach helps avoid the necessity of selling during a downturn, preserving the value of the remaining investments.
Challenges of Technology in Retirement Planning
For older retirees, like those in their 80s, managing investments through technology can be daunting. Many have their retirement savings in Self-Managed Super Funds (SMSFs) and find the digital landscape overwhelming.
The shift from broker-assisted share purchases to online management introduces risks and complexities, including security concerns and the fear of scams. Simplifying investment management while achieving attractive returns becomes a priority.
Simplifying the Investment Process
One solution is to evaluate the necessity of maintaining an SMSF. For those in the pension phase, selling the portfolio and rolling the cash into a large public offer fund might be advantageous, as it avoids Capital Gains Tax (CGT) consequences.
If retaining the SMSF is preferred, establishing a wrap facility could streamline management. A wrap facility consolidates all fund holdings, manages share registry work, tracks dividends, and provides tax reporting, all through a single login.
“Within a wrap, you can hold listed investments as well as cash and term deposits – most providers have access to several banks, so you can choose the best deal.”
This consolidation reduces the technological burden, making investment management more accessible for non-digital natives.
Looking Forward: Balancing Risk and Security
As retirees navigate their financial futures, balancing risk with security is crucial. Diversifying investments within superannuation and simplifying management processes can provide peace of mind and financial stability.
Paul Benson, a certified financial planner at Guidance Financial Services, emphasizes the importance of strategic planning and adapting to technological changes in the investment landscape. His insights highlight the need for retirees to stay informed and proactive in managing their retirement funds.
Ultimately, the key to a secure retirement lies in a well-considered strategy that accommodates both market fluctuations and personal comfort with technology.
