Money Australia – July 2017

RICHARD WHITFIELD

Balancing risk and return is a

challenge in retirement years

Safe

place for

savings

CASE STUDY

ASK THE EXPERTS

NAME:Bill and Lynn
STATUS:Pensioners, with Bill working
part-time
QUESTIONS:Whereisasafeplaceto
investthatpaysmorethanatermdeposit?
Howdooursavingsfitwiththeagepension
toprovidearetirementincome?
ANSWERS:Move your savings into a
superannuation fund’s account-based pen-
sion as your income will be tax free. Avoid
higher-yielding investments such as deben-
turesastheyarerisky.Keepyourmoneyin
atermdepositifyouwantlowrisk,butif
youcantakeonabitmorerisktrythe
“bucket” system: keep six years’ worth of
income in cash and the rest in growth
assets. That way if the sharemarket does
go down, you will have money to live on
so you don’t have to sell your shares and
you can wait until they recover.

B

ill and Lynn have an investment

dilemmathatiswidespreadamong

pre-retirees and retirees. With cash

andtermdepositratessolow,wheredo

they put their money? They need to gener-

ate an income to live on comfortably.

Lynnhasretiredandisonadisability

pension. Bill works part time and is on a

part age pension. They own their home and

have moderate savings for their retirement

years. They have invested it in a term

deposit earning 2.75%, but when they came

to roll it over recently the rate had dropped.

A financial adviser at the bank that handled

the term deposit has offered to invest it into

a portfolio in an allocated pension. The

pricetagforthefinancialplan,ifBillwere

to proceed, is around $4000 or 1.4% of their

investment.Hegetslotsofadvicefrom

people who tell him that they are making

good money in this investment climate,

intheregionof8%-9%pa.

Bill says they don’t want to put their

retirement savings in any risky invest-

ments. “We can’t start over again,” he says.

Hewantstoknowifthereareanyinvest-

ments without any volatility. Or are there

anyguaranteedreturnsoninvestments?

“Iwouldliketoinvestsomewherethat

willgive better returns. I really want our

life savings to be safe, and to be able to

sleep at night,” he says.

Billwouldliketoknowwhatsortof

income he and Lynn can expect for their

retirement. How can his savings and earn-

ings from part-time work mix with the age

pension? “I figure that we can have a good

lifeifwehavearound$900to$1000aweek

toliveon.Weliketotakeaholidayoncea

yearforaroundtwoweeks.”

They need their money to outstrip infla-

tion.TheReserveBankexpectsinflationto

be around 2% over the next year and this

meansthatiftheircashispaying1.5%then

their return isn’t keeping up with the cost

of living. To stop their money from going

backwards, they need to find income at a

higher rate.SUSAN HELY