Investing for retirement

Speaker 1 [00:00:00] Once you've finished work or have chosen to retire, it's time to decide what to do with your SASS benefit. If you meet a condition of release, one option is to stay within super by rolling over your money into the retirement phase with another super fund. Many SASS members do this so that they can use an account based pension to pay themselves a regular income in retirement with an account based pension. You get to choose how your money is invested when you receive your payments, and how much you want to receive, provided you meet the minimum annual withdrawal amounts set by the government. The balance of your money remains invested so that it can keep on growing. Having a regular income can help you stick to a budget and stay on track with your retirement plan, but it's flexible, too.

 

[00:00:59] If you need to access part of your balance or the entire account, you can withdraw it at any time. Just remember, the more you withdraw, the sooner your money will run out. Another benefit of the retirement phase is the potential tax savings. You pay 0% tax on the income you earn on your super. Once you're over 60, you won't pay any tax on the amount you withdraw either as a lump sum or as regular income. While there are benefits to rolling your super into the retirement phase, there are some limitations to be aware of. After you set up an account based pension, you can't add to it. So if you want to add more, you'll need to either set up a separate account based pension or roll back your first account based pension to the accumulation phase. Add to it within the contribution limits and then start a new one. You could also leave your money in the accumulation phase. In the accumulation phase. Up to 50% tax is paid from the income on your super. This tax is paid directly by your super fund and the details are included on your annual statement.

 

[00:02:22] While many super funds offer a transition to retirement income product that allows you to draw down from your super whilst you're still working, this isn't a feature of the SASS scheme, so bear in mind that once you take your money out of cess, you have to remove it all. Deciding what to do with your money when you retire is a big deal. The good news is aware super planners are experts in cess. To book an appointment with an Aware super planner. Visit the Aware Super website or call us on 1800 620 305. Today.

Lynn Baker [00:00:06] Hi, I'm Lynn Baker from a we're super meeting with today, Jackie Ellis, who's our portfolio manager of retirement strategies. Welcome, Jackie.

Jacki Ellis [00:00:15] Hi Lynn. Thanks so much for having me. It's a pleasure to be here.

Lynn Baker [00:00:18] I wanted to chat to you today, specifically about some of the advantages of investing with a super fund in retirement rather than investing on your own. And specifically, that could be, for example, through an account based pension. But what's the main advantage that you see if staying within the super system?

Jacki Ellis [00:00:38] Look, I think the, the main advantage is really around the way in which we, as one of the largest superannuation funds in Australia, are able to leverage our scale to invest across a broad range of really high quality investments. And we can do that because of that scale at really attractive fee levels that simply aren't available to individuals when they go it alone, that can, you know, really add up over time to make a huge difference to their retirement savings.

Lynn Baker [00:01:08] We consider flexibility. And, you know, particularly when we're contributing to super there's a lot of rules around access. What sort of flexibility do you have in investing through an account based pension?

Jacki Ellis [00:01:21] Some people are surprised to find out that actually, it's really the same thing when it comes to control and flexibility. All of that exists within the superannuation system, so you can choose how you want your investments, managed and how they're invested. You can get some advice along the way if you'd like help with making those decisions. And you can also choose exactly how you access those funds. You do have full access, and flexibility. So you can choose whether you want to draw a regular income and if so, when you might receive that income and how that how much that might be. And you can also take lump sums along the way if you so wish.

Lynn Baker [00:02:01] And is there any barriers to starting an account based pension?

Jacki Ellis [00:02:05] No, it's really, quite a simple and straightforward process. There are no, set up fees or barriers involved, in any way, it's simply, start with opening an account based pension, and then you would instruct state super to rollover, you know, part or all of your retirement benefit. And you can also combine any other superannuation money that you have into that same account, base pension. And that can be really, beneficial over time because it means you're not doubling up on administration fees and things like that with multiple accounts.

Lynn Baker [00:02:38] Now, you made a very specific point there about rolling over directly, you know, from the SAS account. Why is that?

Jacki Ellis [00:02:45] Oh, look, that's actually a really great point. Thanks for highlighting it. It is something that you need to be clear in your mind that you're going to do prior to retirement because, the regulations around superannuation mean that for some people, once they take money out of the system, they can no longer put it back in. And so you want to make sure that you're rolling that retirement benefit directly from states over into the account based pension you've opened to avoid coming across any problem.

Lynn Baker [00:03:13] Right. So staying within the super system.

Jacki Ellis [00:03:15] Yeah. Really important.

Lynn Baker [00:03:17] So, Jackie, we hear a lot also about the tax benefits of the retirement phase of super. Can you talk a little bit about those?

Jacki Ellis [00:03:25] Yeah, absolutely. In the retirement phase, a super. So for example, any money invested in that account based pension, there is no tax on that phase of the superannuation system. And so that means that, any investment earnings that you, receive on the money you've invested with us will not be taxed at all. And also, any money that you're withdrawing from the system will be tax free. So you're not going to pay any personal income tax, for example, on your regular income payments or any lump sums that you withdraw.

Lynn Baker [00:04:01] Oh, that's a great advantage.

Jacki Ellis [00:04:03] Yeah, absolutely. And, you know, it all adds up. So you know, the benefits from the tax free environment, the more attractive fee levels that you can invest those money, monies that, you know, all of that can really add up over the course of your full retirement journey because it means that, you know, more of that money. The earning is staying with you. You're able to retain more of that, of your savings invested in the market, which then in turn and further returns and you get this kind of compounding effect, which is really powerful over time. And that's something that's particularly important for retirees, actually, because, you know, as a society where we're all living longer and that means that, we're going to need our retirement savings to, to last longer and work harder, and every little bit counts.

Lynn Baker [00:04:52] Yeah. And some retirees will be in retirement 20, 30 years or more. So it's certainly an important consideration.

Jacki Ellis [00:04:58] Absolutely. Yeah.

Lynn Baker [00:05:00] So, Jackie, on the subject of tax, we've heard a lot about the advantages for retirees of franking credits and how important they are. So if you're investing with a super fund, do you still get an advantage from franking credits?

Jacki Ellis [00:05:14] Absolutely. And in fact, a super fund receives franking credits in exactly the same way that an individual would, and those franking credits are fully passed on to our members in the form of investment returns. It's also the case that franking credits are most valuable for retirees because of that zero tax environment we were just talking about. It means that our, members in the retirement phase actually get fully credited back. Any tax that a company has paid in the course of their, their business dealings. And, we're really mindful of that. And that's actually one of the reasons why we tailor investment strategies, specifically for our retired members, so we can make sure we're taking full advantage of that.

Unidentified [00:06:02] On their behalf.

Lynn Baker [00:06:09] So, Jackie, what do you see is some of the biggest mistakes that SAS members make when they invest their lump sum on their own.

Jacki Ellis [00:06:17] I think probably the biggest mistake I see when, investors go it alone is just a lack of diversification in the typical investment strategies that you employ.

Lynn Baker [00:06:28] Can you just give us a little explanation of what you mean by diversification?

Jacki Ellis [00:06:32] Diversification is simply investing across a broad range of investments or asset classes. So for example, cash, bonds, equities, property, infrastructure, that sort of thing.

Lynn Baker [00:06:46] And then a range of investments within those asset classes.

Jacki Ellis [00:06:49] That's right. So, you know, as I mentioned before, at CFA, we have that scale. And that allows us to ensure that within each asset class, we also investing across a large range of assets. And it's really important to do that because, you know, different investments have different investment characteristics. And that means that they move differently with different market dynamics. And so by investing across a range of, investments within each asset class and a range of asset classes, you help ensure that you're minimizing the risk that they'll always value at the same time.

Lynn Baker [00:07:23] And Jackie, you mentioned there that you see a number of SAS members, you know, with strategies that aren't well diversified. Can you give us some examples?

Jacki Ellis [00:07:32] Sure. I think the classic one that comes to mind is, how we see many SAS members choosing to invest in property instead, so they might invest in 1 or 2 properties and look to leave off the rental payments associated with that. I think as Australians, we we feel like property is really safe. You know, it's it's bricks and mortar is we can we can touch it and understand it. But it's actually a very, concentrated way to invest your money. And, and that comes with, quite material risks, actually. You know, particularly in retirement where you're funding your lifestyle, you know, you can face periods of disruption to that rental income. Maybe there's a period where it's not tenanted or you're facing some significant repairs, and it's also, an illiquid investments. So you can't actually draw out any sort of lump sums if you're facing some unexpected expenses or some change in circumstances. And then, you know, you might be forced to sell the property instead. And, you know, the timing of that may or may not be, great, because, you know, you could be facing, a slow or low property market and it can actually take some time to sell those assets to you.

Lynn Baker [00:08:46] Yeah, really great point.

Jacki Ellis [00:08:47] So at the other end of the spectrum, another mistake we see investors make is actually taking on too little risk. Right. So the classic one there is taking out that retirement benefit and investing it all with term deposits. Looking to live off the interest from those term deposits. I think that can be attractive because the outcome is really certain. But, actually the interest that you're earning on term deposits at the moment is very low because cash rates are low, and that means it's just not possible for those investments to keep pace with the cost of living.

Lynn Baker [00:09:21] Yeah. And so the compounding effect of that over their retirement could really eat away at those retirement savings and the buying power of their money.

Jacki Ellis [00:09:31] That's right. And that, you know, it is really important to have that long term mindset when you're going into retirement and can really impair your ability to maintain the lifestyle that you want over time.

Lynn Baker [00:09:43] So, Jackie, what about those, investors that perhaps are really chasing the higher returns and, and, you know, happy to take on more risk? Perhaps any investing in this train shares, for example. What's your thoughts on those strategies?

Jacki Ellis [00:09:58] Yeah, actually that that is another strategy we see, particularly in investing in Australian equities and living off the dividends and franking credits. And you know, certainly that is a great source of income, but we would prefer to see that done in a more diversified way, like I was speaking about before. Because otherwise, if you're fully investing in Australian shares, the market is, fully exposed to the market cycle. And, you know, can face periods of significant losses. And in retirement that can be, really impactful over time because you're drawing an income out of those, those savings, if you're drawing an income, or taking out a lump sum for unexpected expenses.

Lynn Baker [00:10:41] You'd have to sell down those shares.

Jacki Ellis [00:10:42] Yeah, well, that's right. And you might face doing that at a point when, market prices, depressed, selling low really ends up over time. And you can't always rely on the dividends and franking credits being sufficient income. You know, often in market crises, for example, you can see regulators ask banks to cut their dividends, to shore up their capital base. And so that. Compound those risks.

Lynn Baker [00:11:11] Yeah. They're not guaranteed.

Jacki Ellis [00:11:12] No. That's right. The other mistake that we commonly see is just how much people underestimate what's involved in managing their finances and these investments on their own.

Lynn Baker [00:11:23] Which is interesting because you think of retirement, and most people would think about holidays and spending time with family and hobbies.

Jacki Ellis [00:11:30] Yeah, that's right. But I think for some people, maybe that hobby might be this idea of managing their money. And that could be exciting. But we often find that it starts out that way, and then they realize how much, you have to be across what's going on in those investments or markets all of the time, because things are constantly changing. There's also a huge amount of administration and paperwork associated with self-managed super funds, which I, I don't think people appreciate when they go into it. Yeah, just so much regulation around superannuation itself that, you know, it can become a bit of a burden over time. And, so we often see people start out really excited and they just lose interest.

Lynn Baker [00:12:10] And conditions can change so quickly. That could leave them quite vulnerable.

Jacki Ellis [00:12:13] Yeah, absolutely. So I think, one of the key benefits of having your money, invested with a super fund is just having that team of investment professionals being across what's going on in markets for you so that you don't have to worry. And, you know, managing your money on an ongoing basis that can.

Lynn Baker [00:12:33] Gabriel peace of.

Jacki Ellis [00:12:33] Mind. I think so, yeah.

Lynn Baker [00:12:35] So, Jackie, what's different about managing for retirement?

Jacki Ellis [00:12:39] Look, I think it is different and particularly so for SAS members. You know, they've had their money invested in a defined benefit scheme, and a large portion of that money has been being protected from, the movements in.

Lynn Baker [00:12:51] In markets they might be experiencing for market risk for the first time.

Jacki Ellis [00:12:55] That's right. And that can be a little bit disconcerting for some people, actually. And so you need to, push past that and make sure you actually are invested in the markets because, you know, growth in returns is going to be really critical to be able to, you know, fund the lifestyle that you'd like to have in retirement. And also make sure that your savings lasts for your whole retirement. And being mindful, like I mentioned earlier, that we're all living longer, and it is actually quite a considerable period of time that you're, drawing an income for in retirement. But at the same time, it's really important also to be managing risk along the way. You know, if your portfolio suffers a large loss, you know, most people in will still need to draw an income out of their retirement savings because it is their sort of primary source of income in retirement.

Lynn Baker [00:13:49] So they're that's able really to participate in the recovery that might follow.

Jacki Ellis [00:13:53] That's right. You know, you take your money out and then you got less money exposed to recovery. And it sort of has this, double whammy impact that can be, a really lasting effect on your retirement savings. So being able to manage that, risk of large losses is really critical. So it's a real balancing act actually. And I think you need to have the right skill and knowledge and, and time focused on getting that balancing act right.

Lynn Baker [00:14:20] So thank you, Jackie, for sharing your thoughts with this today.

Jacki Ellis [00:14:22] No problem.

Lynn Baker [00:14:23] At it. We're super. We specialize in retirement and we do manage our retirement retired members money differently. And that's really to ensure that we meet that income needs and we protect their savings and manage their risks. And and we're super financial planner can tailor an investment strategy that's right for you. Thanks very much.

Speaker 1 [00:00:04] Well, I wasn't actually thinking about retirement until Michelle got cancer.

Speaker 2 [00:00:09] Both of us just thought, well, now's the time we've been putting away for our future. And all of a sudden, the future was here. I've got three daughters. They encouraged me to to not go back to work. They thought that of, you know, 40 years of working was enough, mom, and now you're not well, just get better for us.

Speaker 1 [00:00:30] We went up to see our planner. And she drew some pictures on a whiteboard, showed us with little arrows what money was doing, how it was working, and put the plan into a picture that we could understand, so that we could concentrate on getting Michelle well and leading the next part of our life. Fortunately, her health's got better, and now that her health is better, she's got more time to be able to give back to the community. And that's really important to us. In our working lives, we worked for people, schools, communities. And now in our retirement life, our work is around volunteering, to help people who are part of those communities.

Speaker 2 [00:01:12] The thing that I love about our lifestyle at the moment is that we now have all of the time that we never had to put into our family. We actually have been to more assemblies for our grandson than we actually went for our own children because we can.

Speaker 1 [00:01:30] It's true. We can.

[00:01:33] All of the advice that we've been given, the strategies we take around managing our finances, make our life oh, fantastic. And we're very confident and very happy and very knowing now about how our money's working for us. And, we thibk the future's pretty good.

¹ Financial advice services are provided by Aware Financial Services Australia Limited (ABN 86 003 742 756, AFSL 238430), wholly owned by Aware Super.