04.Decades until retirement / Close to retirement
I'm decades from retirement. What can I do?
Firstly, there are no right answers based simply on your age. Although younger people have much more time to make up for current losses, this shouldn’t mean sticking with a fund that doesn’t compare well against its peers for performance, fees, services and insurance.
For those prepared to take a long-term view, with a balanced to aggressive risk profile, Luna sees “great opportunities now to invest in sound assets at very attractive prices” – but he warns to be prepared for more volatility.
“Consolidation of super accounts to minimise fixed costs such as administration fees is a good idea,” says Sam Wall, Executive Manager of Technical Services at Colonial First State. “Understand how much you’re paying to invest in your fund and what advice, if any, you’re receiving in return. Review your insurance situation – it can often work out cheaper to buy death, disability and income protection insurance via your super fund” (see Credit protection insurance sham).
I’m close to retirement. What can I do?
Again, there is no correct strategy based simply on age. This is an area where you may benefit from professional advice about both your investment options and your overall strategy for retiring. The following are some of the options put forward by advisers.
Cut costs “The only sure way to survive a major downturn in markets and ensure financial security is to reduce your cost of living and manage those costs with discipline,” says Bruce Baker. “One useful guide is that in retirement, if you keep your cost of living to 4% of your net investment portfolio balance (not counting your home), you can survive the bad times with most of your capital intact. You’ll have a reasonable chance of rebuilding in the following period.” Of course, you may need to have a fairly large super balance or cut living costs significantly to make the 4% guideline work.
Delay your retirement “This would provide you with an opportunity to contribute more to your super, and hopefully allow your investments to recover from the market downturn,” says Luna.
Check eligibility for Centrelink payments Contact a financial information service officer at Centrelink to find out about your entitlements, which may include a part pension and rent assistance.
Transition to retirement pension This allows you to continue working and contributing your earnings to your superannuation fund, while drawing out money from a transition to retirement pension fund to live on in the meantime. The overall effect is you’ll pay less tax and boost your superannuation fund for when you fully retire. For more information see Ease into retirement