25 September 2023

All a matter of timing: How to invest for your retirement

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David Gray* says that when you’re looking at retirement goals and the income you’ll need, how your money is invested becomes very important.

Photo: Brian A Jackson

Around the time you retire, your super savings are likely to be reaching their peak in value.

This is great news but it’s also a sign that you need to review and potentially change your investment strategy.

If some – or all – of your super is held in market-linked assets at this time, a downward trend can produce a significant fall in retirement savings.

Making a withdrawal during a market slump, prior to it recovering, will lock in these losses.

When you’re about to retire, the time available to make up for the shortfall with more super contributions is running out. So your super can end up taking a hit it won’t recover from, leaving you with less to live on.

Talk to public sector super scheme members who retired around the time of the GFC and you’ll discover the long-term impact of this economic crisis on their retirement choices.

Those receiving a pension after deferring it and their benefit therefore being affected by market returns, experienced a significant loss from their super fund that has affected their income well into retirement.

The retirement risk zone

This is why we refer to this time in your life as the ‘retirement-risk zone’.

In my view, we’re talking about roughly five years before and after you retire, so that’s a 10-year period in total.

A thorough review of investment and retirement choices at this time makes sense, and not only due to market related risks.

For CSS scheme members, for example, it’s worth looking at the pension benefit you can expect to receive at age 55.

This is the minimum age for accessing your super as an income stream, but will you have enough to meet your income needs for the rest of retirement?

A retirement-ready approach

So what might a retirement-ready investment strategy look like?

For the majority of people, super savings can be allocated to one of four buckets:

  1. Income for one-off expenses such as a new car or holiday plus emergency funds for a time of need. These savings are held as cash so money is available immediately with no impact on your investment position.
  2. Income for regular living expenses is divided between two buckets, each with a different investment strategy:
  3. Invested to deliver income for the next 2-5 years
  4. Invested to deliver income and returns for the full duration of retirement
  5. Any excess funds can be invested in diversified assets with higher potential returns.

Your own appetite for risk

Determining the amount, and investment strategy, for each bucket will depend on your income needs and how much super you have saved.

Your personal risk preferences are another important consideration.

When you’ve had positive or negative experiences with investing in the past, or you’ve learnt from the changing fortunes of friends and family, it can generate a greater or lesser appetite for risk in your retirement investments.

If you’re a defined benefit scheme member, you may enjoy the security of a government backed, index-linked pension for life.

This security can reduce the downside of taking too little risk as your income is protected from the potential impacts of inflation and longevity.

On the other hand, perhaps you can afford to take more risk with other investments when you have a predictable income you can count on for the rest of your life.

Look at the big picture

Like all big decisions, it’s best to seek professional advice before you implement your investment strategy.

Knowing your money is invested in the right place will provide you with greater peace of mind, and ultimately a higher chance of enjoying your ideal retirement.

Take the next step

With the right help, planning for your retirement is easier than you think.

For more expert tips, visit the StatePlus website at this PS News link.

* David Gray is a registered financial planner with StatePlus and can be contacted at [email protected]

StatePlus, formerly State Super Financial Services, is one of Australia’s leading providers of financial planning. Since 1990, our retirement experts have provided life changing financial advice to public sector employees and their families. With a StatePlus planner by your side, you can feel confident about reaching your financial goals to live the retirement you really want.

This article was published in May 2018. The information in this article is correct at the time of writing. This is general information only and does not take into account your personal objectives, financial situation or needs. It is important to seek financial and taxation advice that takes into account your personal objectives, financial situation and needs before making any decisions based on this information.

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