POWERED BY MOMENTUM MEDIA
Why pre-retirees should adjust their strategy
People nearing retirement need to rethink their investment strategies in light of the still changing circumstances being driven by the COVID-19 pandemic, according to a new analysis issued by AMP Limited.
The analysis, undertaken by AMP’s chief investment officer, Lakshman Anantakrishnan has pointed to the underlying economic dynamics, and argued that adjustments need to be made for what are far from normal times where superannuation and retirement are concerned.
“Due to quantitative easing, asset prices are likely to continue to go up – which is what we’ve been seeing in the share market – despite the negative economic outlook. This will probably continue over the short-term, but in the long-term it creates a new risk in the system. Instead of concerns about the level of household debt or corporate debt there are likely to be concerns about the level of government debt,” Anantakrishnan’s analysis said.
“So, the long-term outlook is a bit riskier, as the reality of the underlying economic situation could kick in at some point if financial markets lose their confidence in the central banks. Total long-term returns are probably going to be lower than they’ve been in recent cycles.
“A lot of people have had their super in a growth option, which is usually fine over the longer term, but in or nearing retirement the focus should be on how to achieve a stable income stream rather than the accumulation of capital.”
“For those nearing retirement, a substantial capital loss now could have a big impact on lifestyles. It’s extremely important to understand risks and the impact these could have on retirement outcomes. These things should be considered if someone is thinking about deferring retirement until their super levels have been restored,” Anantakrishnan said.
“For those already retired, expected spending should be re-visited as budgets will need to be reassessed for the next five to 10 years. Because financial market conditions have changed, investment strategies should also be reviewed to understand the changes to expected returns and income, as well as the changes in the level of risk being faced, and whether there is comfort in carrying this risk.
“As always, and particularly due the vulnerability of finances at this time of life, it always makes sense to speak to a super fund or financial adviser before making any changes to superannuation or investments.”
Recommended for you
Jim Chalmers has defended changes to the Future Fund’s mandate, referring to himself as a “big supporter” of the sovereign wealth fund, amid fierce opposition from the Coalition, which has pledged to reverse any changes if it wins next year’s election.
In a new review of the country’s largest fund, a research house says it’s well placed to deliver attractive returns despite challenges.
Chant West analysis suggests super could be well placed to deliver a double-digit result by the end of the calendar year.
Specific valuation decisions made by the $88 billion fund at the beginning of the pandemic were “not adequate for the deteriorating market conditions”, according to the prudential regulator.
TOP PERFORMING FUNDS
ACS FIXED INT - AUSTRALIA/GLOBAL BOND
Fund name
3y(%)pa
1
Spire Oaktree Opportunities XI Second Close
61.07 3 y p.a(%)
2
Spire Oaktree Opportunities XI First Close USD
59.21 3 y p.a(%)
3
DomaCom Lot 21 Chellaston Road Munno Para West SA 5115 Australia
31.56 3 y p.a(%)
4
Fidante Credit Suisse Global Private Equity
31.06 3 y p.a(%)
5
DomaCom 4/27 Crombie Avenue Bundall QLD 4217 Australia
26.81 3 y p.a(%)
At retirement the time horizon to be catered for could be 30+ years.
So by using both capital and interest one could secure the first 3 to 5 years required cash flow by using Term Deposits within the Retirement Fund maturing in 1, 2, 3 and/or 4 and 5 years.
The balance of Retirement Funds being invested in growth investment sectors.
Then as the first years term deposit matures use both the capital and interest to fund the next years required cash flow.
Then from the balance of the Retirement Fund account set up another Term Deposit maturing in 3 or 5 years As the case may be so that you always have a term deposit maturing each and every year.
This sort of thought process has worked since the late 1980s and thereafter to the present day.
However, some rather arrogant Retirement Fund managers do not facilitate that the maturing Term Deposit is to be used to provide the next years income thus putting an additional personal member handling step in the whole process.