Investing in retirement
When investing in an account based income stream, you can choose how your money is invested. But did you know you can also nominate which option your income is drawn from?
The following is general advice about how you may use investment choice to your advantage. Please consider your circumstances before making an investment choice. For advice tailored to your specific situation you can get advice at no additional cost with Telstra Super Financial Planning. To make an appointment you can call Telstra Super on 1300 033 166 or request an appointment online.
How should I invest my money?
There exists the old wives' tale that because you have reached retirement, your investments should be conservative and your primary investment objective should be to protect your capital. But when you consider the effects of inflation and your income requirements for a comfortable retirement, playing it safe could be a risky path.
Most Australians’ retirement savings need to last 20, 30 or even 40 years. If you have an account based income stream like Telstra Super RetireAccess®, your income is slowly drawn down against your account balance. So by investing too conservatively, your investment may not generate enough earnings to last you through retirement.
But investing all of your hard earned retirement savings in an aggressive strategy such as international shares (which is volatile and may experience a negative return in the short-term) would be equally risky.
So how do you strike a balance? You need to look at both your short-term and long-term requirements.
Short-term cash flow
Your short-term cash flow requirements need to be protected from market fluctuations. Telstra Super Financial Planning advise that recipients of income payments from account based income streams should invest enough money in a conservative investment option - such as Telstra Super's Conservative or Cash investment options to provide at least two years' cash flow .
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Jane is 67 with a Telstra Super RetireAccess account balance of $250,000 from which she receives income payments of $20,000 each year. While Jane is not an overly conservative investor, she decides to invest $40,000 (representing 2 years cash flow) in Telstra Super’s Conservative investment option.
Jane also asks Telstra Super to make her income payments from the $40,000 that she has invested in the Conservative option. In this way she is helping to ensure that her income will not be affected by short-term market fluctuations. |
Beating inflation over the longer term
Investing some of your account based income stream conservatively can provide you with a level of comfort in a difficult financial market, but it's generally not thought appropriate to invest your entire balance in a conservative option.
Growth assets, such as shares and property have shown the highest long-term results. As a retiree, it is essential that you consider the time horizon of your investment. Traditionally retirees have believed that they should invest their entire account conservatively, but most have more than 20 years of retirement. So, a portion of your account balance needs to be invested for the long-term, to ensure that inflation does not erode your capital and that your income continues to meet your needs.
If Jane has invested $40,000 of her account balance in the Conservative option, what should she do with the other $210,000? Jane believes that she'll need income payments for at least the next 20 years. To guard against inflation, and receive sufficient income to fund her retirement lifestyle, Jane invests the remaining $210,000 in Telstra Super’s Growth investment option, from which no income payments will be drawn. In two years' time, Jane will reassess her financial position and may reallocate her account balance accordingly.
What about lump sum one-off payments?
If you know that you are going to need to withdraw a lump sum in the short-term, it should be treated as short-term cash flow and invested accordingly.
How can I change the way I invest?
With Telstra Super RetireAccess you can choose to invest your money across 8 investment options and choose where your income payments are taken from. This diversity helps you to ensure that your short-term income requirements are met, while the rest of your investment has an opportunity to grow over time. For more information see Investment basics. To find out what options Telstra Super offers visit the investment options pages.