The search for yield in a low interest environment.
Superannuation | 6/07/2018 |
8 min read
Low interest rates have helped fuel Australia’s economy for the past decade. While that’s proven a boon for property investors, it’s also made it harder for pensioners to earn an income on their superannuation savings.
The Reserve Bank hasn’t raised the official cash rate since 2010, and that number hit a record low of just 1.5% in 2016. If you favour low risk investment options like cash and term deposits those returns are barely keeping up with inflation.
With interest rates expected to remain low for the foreseeable future, it may be time to re-evaluate your investment options.
What is lifecycle investing?
Lifecycle investing means adjusting your risk level to your life stage. So while you might opt for an aggressive mix of super options in your 30s and 40s, as you approach retirement you’ll look for less volatile investments.
For most retirees that means opting for cash and fixed interest investments. And while that was an effective strategy when these conservative options were returning 5-6% per annum, those days are long gone. At their current levels, many people are finding their projected income requirements are falling short.
Understand your income needs
Your superannuation returns don’t exist in a bubble. For most people they’re part of a broader income stream that might include the Age Pension, other investments and perhaps some part time work. How all those elements fit together and how much money you actually need to maintain your lifestyle varies from person to person.
The one constant is the need to draw-down a minimum 5% from your super every year (based on your age). But if you're only seeing 1.5% in returns that's not ideal.
Re-asses your risk
A superannuation pension is a great vehicle for holding your money in retirement, because there’s no tax payable on either income or capital gains. But if you’re finding that traditional investment options aren’t delivering the numbers you require, you can look for higher returns in more diversified investment options.
Equip’s conservative option returned 5.7% for pensioners last financial year. Comparatively, Cash and Fixed Interest returned 1.8% and 2% respectively. Further along the risk scale, Property and Australian shares delivered 10% and 15%.
If you’re supporting your retirement with a full or part age pension, you'll want to ensure you’re receiving all your entitlements. And as your superannuation income shrinks you may be eligible for increased age pension payments, which can help offset any decreases in other income sources.
Aside from payments, you may be entitled to additional benefits including an energy supplement, carer allowance, and rent assistance. In other words it pays to check in with Centrelink to ensure they’re assessing your income and assets correctly.
Consider your super options
While cash and fixed interest investments have been the go-to options for retirees in the draw-down phase of their super, the ‘search for yield’ has seen people look further afield to maintain their income.
Speaking to an Equip financial planner is a great way to learn more about your income options in retirement, and how to structure your assets in a way that provides both financial security and a lifestyle you can enjoy.
Concerned about your retirement income? An Equip financial planner can help you understand your options, and get more out of life. Find out more about our fees and service by clicking here.
This information is provided for general information only. It does not take into account your personal objectives, financial situation or needs and should therefore not be taken as personal advice. You should consider whether it is appropriate for you before acting on it and, if necessary, you should seek professional financial advice. Issued by Equipsuper Pty Ltd ABN 64 006 964 049 AFSL 246383. MySuper Authorisation Numbers 33813823017672 and 33813823017518 (‘Equip’, ‘the Fund’ and ‘the Equip Rio Tinto Fund’). Past performance is not a reliable indicator of future performance.
Equipsuper Financial Planning Pty Ltd (“EFP”) (ABN 84 124 491 078, AFSL 455010) is licensed to provide financial planning services to retail and wholesale clients. EFP is owned by Equipsuper Financial Holdings Pty Ltd (ABN 11 604 515 791). You can obtain the EFP Financial Services Guide and/or Privacy Statement by contacting our Helpline 1800 682 626.