Australians are rushing towards retirement in ever higher numbers with more in superannuation than ever before, but that means it is vital to avoid retirement mistakes.
Figures from the government’s Retirement Income Review show that only 68 per cent of retirement-age Australians relied on the age pension in 2018 compared to 80 per cent two decades earlier.
That is a result of the buildup of superannuation assets in that time.
That is great, but it also means that more people are taking personal responsibility for their retirement, and it is increasingly important not to make mistakes that can be financially crippling.
Leave it to the experts
Ian Yates, CEO of the Council on the Ageing (COTA), said one of the traps for older players is “thinking you can do better than professional fund managers”.
Such thinking can lead people into setting up a self-managed superannuation fund (SMSF) when they probably shouldn’t.
“You see people move into SMSFs because they want to feel they have more control, but they actually haven’t got the experience to run one,” Mr Yates said.
That can result in their retirement savings growing more slowly, or even losing ground, while a balanced account with an industry fund would have delivered a much better performance.
“At the extreme end there are scams that people sign up to because they think they’re being offered something better,” he said.
There is a growing honeypot for scammers as Australia’s population ages and becomes wealthier.
An ABC report on Monday detailed a scam where six Australians lost $3.3 million in superannuation savings after falling foul of fraudsters.
Don’t panic!
With sharemarkets falling heavily in recent months and volatility high, it is important to keep your head, said Ashley Bishop, planner with Verse Wealth.
“Don’t move to cash because you feel it’s safer, because you won’t be able to take advantage of the recovery when it happens,” he said.
Market recoveries happen quickly so if you move to cash because you are scared, you will be unlikely to have the emotional wherewithal to get back in before things turn around.
Mr Bishop cited the example he saw of a person who sold out at the bottom of the GFC and lost half the value of their fund as a result.
“Be patient and manage your emotions,” Mr Bishop said.
For younger people, a slump like the current one can be an opportunity to salary sacrifice in super and buy into the market at low prices.
Don’t be too conservative
“Think about how long you might live,” said Wayne Leggett, an adviser with Paramount Financial Solutions.
Formerly it was often said people should choose more conservative investments as they age, but that is not always wise.
“Remember, if you retire at 65 you may well live into your 90s, which means you will go through three full stockmarket cycles in retirement,” Mr Leggett said.
That means that investments have time to recover from down periods, and a balanced fund with about 70 per cent in growth assets will deliver growth over time.
“People say the sharemarket is risky but it’s not risky – it’s volatile,” Mr Leggett said.
“If you’re invested in the market rather than one stock you can pretty well bank on what you’ll get over the long haul.”
If you go conservative too early you will lose out on future growth.
Plan for the future
Think about what you would like to have in retirement and plan to get there, said Thabojan Rasiah, of Rasiah Private.
“If you leave it too late you will have limited options.”
Think about what you want in retirement then check if you can afford to reach that goal. Put a plan in place to help you get there.
Planning as you age might include issues like, “how much income you will need to live on and how much you want to leave to your kids”, Mr Rasiah said.
Deal with the moment
Circumstances change quickly. The rise of inflation might mean you need to work for a little longer to ensure you have the lifestyle you want.
Currently Australians work less in retirement that in similar countries.
But a recent change means that work might become more attractive with pensioners now being able to earn $11,800 without losing pension payments rather the previous $7800.
The new benefit only runs for this financial year, but the government may change that in the year ahead.
Inflation might also mean you move your savings to a more aggressive stance to boost returns and spending money. However, it doesn’t have to be a dramatic move.
“Your exposure to growth assets might move from 65 per cent to 70 per cent,” Mr Leggett said.
Think before you act
Look at your individual circumstances and needs before making big decisions in retirement.
“People often think they should pay down the mortgage when they retire, but if you have super earning 7 per cent tax-free with a mortgage rate a lot lower than that, it may make sense to keep the mortgage,” Mr Leggett said.
Many people are loath to spend in retirement because they think they won’t have enough or they have trained themselves to be frugal.
“The Retirement Income Review found that a significant number of people are actually dying with a similar amount of money that they went into retirement with,” Mr Yates said.
So check if you can spend more to make your retirement more enjoyable.
The New Daily is owned by Industry Super Holdings.
