Q. My husband and I are self-funded retirees. I’m 64 and he’s 60, and he retired a few months ago. We had savings of $100,000-plus in a savings account, to which we added his superannuation balance of $220,000, so we have around $340k,000 now in the account, earning 2.3 percent per annum. We were advised to see a financial adviser before withdrawing the super and therein lies our problem; we don’t trust financial advisers and we don’t trust super after losing 30 percent of our funds in the last crash. We’re worried about another crash in the near future, so were quick to remove our funds after my husband retired. He was owed a small amount of additional super, so the fund is still active, with around $5,000 in it. I qualify for the Age Pension in June 2020 when I turn 66. We think at that point we’ll have used about $80,000 from our savings and have around $260k left. We can live very comfortably on $40,000 a year so will be transferring $10,000 to $15,000 from the savings account two to three times each year to cover our living expenses until I can access the pension. Once I have the pension, we’ll only need a bit more than half that amount to supplement my pension. My husband won’t have access to the pension until he’s 67 in 2025. We own our modest home and have no other assets, other than our contents and our car. We know we’re being very cautious – some would say overly cautious – and are missing out on the financial gain from leaving our money in super, but we’re also missing out on the risk of losing a large chunk of it. Are we doing the safe thing or are we being really silly? If we follow our current course, will I qualify for a full pension in 2020?
A. I can fully appreciate your caution. Your previous bad experience with super and the heavy use of super by financial advisers would only have been reinforced following the Hayne Royal Commission into banking misconduct. However, let me provide a few fundamentals that might give you some confidence in how you approach things. There are good financial advisers out there, you just have to find them. You can start by visiting the Independent Financial Advisers Association of Australia. This has a very limited membership as there are very few advisers who can be legally called ‘independent’. Genuinely independent advisers cannot be linked to any financial product manufacturer whatsoever and they are barred from charging you fees based on how much money you have (a percentage-based fee is simply a commission by another name). They work to a flat, quoted-and-agreed fee.
When you meet with one of these advisers, they will tell you that you cannot break the link between risk and return. Ever. If you want absolute risk-free safety, reconcile yourself to earning about 2 percent for the foreseeable future by keeping your money in bank accounts. Sensible investing, however, is recognising that short-term volatility is the price we pay for better average long term returns. You need to match the investment to the timeframe you are looking at. An example may help; if you had $30,000 to buy a car in the next 24 months, my advice would be to keep your cash in a high-interest bank account, simply because anything else may have volatility that could see you with less. However, the money for the next car, due in say seven years, I would happily put it into a portfolio of blue-chip, high-quality shares. Why? Because there is a VERY high probability that the return will be much higher than the bank. Sensible investing is having things set up so that you can skim the profits when they arrive to replenish your cash pool and to leave things alone when they are down, knowing that quality assets will always come good. As for the pension, it’s best to check your eligibility by checking the most current assets and income test limits with the Department of Human Services.
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