analysis
Nick Bruining: How to stress less when your super is suffering

There’s no question the recent share market roller-coaster ride will have those nearing retirement wringing their hands in anguish. The level of anxiety is usually tied to how far you are from retirement. Will things recover in time? Should you be deferring retirement for another 12 months? For someone whose retirement send-off is next Friday afternoon, things couldn’t have happened at a worse time. The same might be said for someone who’s planning to pull the pin later in the year. There’s no easy solution, but we can learn a lot from history, what professional investors do, and what other retirees have done before you. If you’ve done your sums and decided that you were good to go three weeks ago, then stick to the plan. Sure, putting off your retirement date will mean that the reliable income from the boss continues — maybe you can pump a bit more into super — but there’ll always be some reason not to retire. At some point, you’ll just have to bite the bullet. An overdue share-market correction was always on the cards, but there’s nothing to guarantee the same thing won’t happen at your new deferred retirement date. The bigger problem, is that you now have less time to knock-off all the things you were planning to do. As sure as the sun will rise tomorrow, we can promise you that at some point in the future, your super fund will effectively be back to where you started and then, you’ll be ahead. Unfortunately, no one can tell you when. The other promise, is that some time in the future, there’ll be another crash. Boom, crash, get used to it. It’s the price we pay for those great 10-and-20-year average returns. The only thing absolutely guaranteed in any of this, is our mortality. Retirement means you ‘ll be needing an income at least another 20 to 30 years. Not only do we need to provide funds for living, there’s the Toyota 4WD and Jayco to get you up to Kakadu and the three months in Tuscany you’ll need to pay for. Also never forget how the fantastic Australian retirement income system works. All of those taxes you paid over the years entitle you to a means-tested pension in retirement. Right now, a home-owning couple with up to $1.047 million in assets over and above the family home, gets a part-pension. As you enjoy your latter years and spend the money, you get more pension. That means you’ll spend less of your savings. Bloody good system. But don’t think you can just drop the ball. Retirement doesn’t mean that inflation stops. Prices won’t remain frozen for the next 20 years. In fact, $70,000 per annum in 10 years would only have the spending power of $52,000 today. Another 10 years and we’re down to $39,000. Our retirement nest egg still needs to keep growing. The only way that can happen is to expose our money to assets that grow at a rate faster than inflation. Those growth assets include things like shares and property — both proven winners over centuries. Shares over the past 100 years have on average, returned more than 7 per cent per annum above the inflation rate. Residential property has returned a little over 2 per cent per annum over the same period and commercial property, at least 5 percent. Your super fund invests your money in these types of assets. Surprisingly perhaps, the investment mix when you move from a working life to retirement often doesn’t change much. In most cases, it should be exactly the same mix, but with some minor changes that allow you to pay the bills. For shares and property, history tells us we’re likely to have a negative year every five years or so. For medium-term — typically between two and five years — super funds will invest some of your money in things called bonds. Kind of like a commercial term deposit, super funds lend your money to borrowers like Federal and State Governments and large corporations like BHP, Samsung and Microsoft. Highly secure, they pay higher interest rates than banks and for a longer term than term deposits. This is the stuff the experienced, educated and disciplined experts in your super fund are using. Assets whose value is determined by the income they produce. Whatever you do, don’t turn into a quasi-punter and try the DIY approach using apparent get-rich-quick investments like crypto or even gold. They produce zero income. Investment “returns” in these assets rely on someone else being prepared to pay more than you paid for the asset. Their investment “returns” are linked to human sentiment and nothing else. Great fun, interesting, exciting and sure, you might be lucky. But at best, treat it as a hobby. So retirement in these turbulent times is simple really. Stick to the plan. You just need to have confidence that history will repeat itself. It always does.

analysisNick Bruining: How to stress less when your super is suffering

analysis
Nick Bruining: How to stress less when your super is suffering