Retirees, battered and bruised over shrinking nest eggs, should stay the superannuation course during volatile financial markets, but are advised to closely examine fund performance and investment strategy.  It’s not the time for disillusioned members to make rash and emotional decisions in light of weaker equity markets during the past 18 months, although shares have recently bounced off their lows. Experts say the recent sharemarket rally may mean equities have bottomed, but they can’t dismiss the distinct possibility of more falls, or a sustained flat-lining period. They advise super fund members to be proactive by matching risk profile to personal circumstances.

A diverse super investment portfolio of equities, property, cash and fixed interest remains a highly appropriate and recommended strategy, according to finance experts. But weighting the portfolio is all important and depends on how much risk investors can stomach.  Strategy will determine the percentage of capital growth and income returns.  Finance planner and investment adviser Gerard O’Shaughnessy says Australian and international equities commonly account for about 40 per cent of a super portfolio. Another 40 per cent is generally allocated to cash and fixed interest, while commercial property makes up 20 per cent. He says it’s an appropriate allocation for today’s retirees and those approaching retirement depending on personal circumstances and risk appetite.

O’Shaughnessy, of Carroll, Pike & Piercy, advises super fund members only several years from retiring to plan now. Establish how much retirement income you will need to live each week and how long a super nest egg is likely to last. “More risk may be appropriate if a member’s super won’t cover life expectancy.” he says. “But you really have to be honest with yourself.  People are prepared to take more risk when the sharemarket is travelling well, but the real test of risk appetite is when the market is falling.” He says pressured and nervous investors tend to make poor decisions when asset allocation and risk profile are mismatched in jittery markets.

O’Shaughnessy says members dumping quality companies out of sheer frustration and disappointment run the risk of missing a recovery. He says the US market is up 23 per cent since its March 9 lows, while the Australian sharemarket has rallied about 14 per cent since March 6.  He says statistics show that days of big sharemarket gains are relatively few. Between June 1997 and June 2007, the average annual investment return was 13 per cent from 2609 trading days. “If you missed the best 50 trading days in that decade, then annual returns plummeted to 2 per cent,” he  says.

O’Shaughnessy says struggling retirees aged 65-plus may be eligible for a part pension depending on their income and the value of assets. He also suggests retirees have exposure to quality Australian equities producing income. “Don’t wait for non-performing stocks to recover; many don’t,” he advises. “It’s the wrong time to sell out of equities, but weight more towards cash and fixed interest if you want to take some risk off the table.”  He suggests members aged 60 or more stay in super as the income (dividends and interest) earned in the fund will remain tax free. Outside super, income may be subjected to tax.


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O’Shaughnessy says super fund members aged 55 or more should consider taking advantage of a transition-to-retirement pension. The strategy enables members to keep working, but earnings in their super fund become tax-free. Their salary and the pension that’s required to be taken allows them to continue topping up super.

Jeff Bresnahan, managing director of SuperRatings, urges retirees and fund members aged in their late 50s and early 60s to seek independent financial advice on their existing fund’s performance and investment strategies. “Retirees, and all super fund members, should focus on what you can control and fees are most important,” Bresnahan says.  “No-one should be paying more than 2 per cent in annual fees, but plenty do.” He says a much better performing fund, with cheaper fees, may be several hours study and a signature away.

Bresnahan suggests those nearing retirement salary sacrifice as much as they can to cash if they’re concerned about market performance. But he is against long-term over-weighting in cash as the returns are modest in a lower interest rate environment.  Also, if inflation moves higher, cash returns will fall in real terms. Bresnahan adds: “And just because you’re 65, overweight in cash is the wrong strategy,” he says. “Those looking forward to funding a long retirement will probably require a mix of capital growth and income assets.”

Despite the global meltdown, Bresnahan says $100,000 in super in 2003 was worth $135,441 in Janaury 2009 and that’s ignoring contributions.  In October 2007, it was considerably higher at $174,040.

Alex Dunnin, of financial services firm Rainmaker Information, says what seems to be forgotten during the global financial crisis is that super is also a long-term investment for many retirees given increasing life expectancy. So it may be appropriate for retirees to think long-term capital growth when it comes to investing.  It may mean switching to a fund that offers a wider array of investment opportunities than the traditional asset classes.

For those wanting to heighten their risk/reward profile, Dunnin suggests investors may want to consider investing a portion of their super in infrastructure projects, “real” property and private equity. He’s not for a minute suggesting investors abandon traditional asset classes, but says global stimulus packages are squarely aimed at infrastructure projects to kick-start ailing economies, and this may generate consistent and positive returns. But investors considering unlisted vehicles should factor in much higher risk as many projects are laden with debt.  It’s much more difficult for fund managers to retrieve investments in poor performing projects as the vehicles are unlisted. Also, factor in softer residential, industrial and commercial property prices in a looming recession.

Dunnin says those delaying retirement in hope of a recovery shouldn’t exit shares now as it appears they are close to or may have bottomed.  Examine the shares in your portfolio and weight towards the big proven performers as they generally recover more quickly. Dunnin and other experts say sharemarkets will recover, and super remains the most tax-effective vehicle to generate retirement savings.