How to choose your retirement pension investment option

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Are your eyes glassy when your superannuation statement lands in your inbox?

Maybe you toss letters from your super fund when they arrive in the mail?

The retirement pension can seem overwhelming and tempting to put in the “I’ll get to it later” basket.

But once you understand the basics, you can make much better decisions about how you want to invest your nest egg.

Make no mistake, one of the worst things you can do is not make a decision at all and let your money sit in a default option without knowing how your investment is working.

Unless you tell us otherwise, your employer will pay your super into a default option known as the MySuper account.

Steps CFO Antoinette Mullins said everyone should make an investment selection.

“You can choose the default one, but make that choice. Don’t let someone else choose for you because it’s such an important thing, ”she said.

What are my investment options?

Ms Mullins said the first thing to understand is that every investment option offered by a super fund will be a mix of growth and defensive assets.

In other words, it will have a different “asset allocation”.

Growth assets include domestic and international equities and real estate securities, while defensive assets include cash and fixed rate bonds.

Over time, defensive assets tend to be less risky but offer lower returns, while the reverse is true for growth assets.

Ms Mullins said growth assets like stocks fluctuate in value more often, which in turn affects your retirement pension balance.

“It shrinks and grows and shrinks and grows and that’s where the volatility and roller coaster of growth investing comes in,” she said.

Ms Mullins said that a default fund like a MySuper balanced account typically has 70% growth assets and 30% defensive assets, while the allocation for a more aggressive growth option might be 85% growth. and 15% defensive.

Conservative investment options can be split evenly between growth assets and defensive assets.

As you near retirement, a MySuper account will have more defensive investments as it is assumed that you will soon need to tap into your super and therefore should accept less volatility.

“You have to remember that even if you are… 65 years old and you start to take your retirement pension through a pension, you don’t need all your money on the first day; you still need your money to last 20 or even 30 years until retirement, ”Ms. Mullins said.

“So even if you are in the retirement phase, you still have a very long time to invest.

“As a retiree or in the process of preparing for retirement, you need a higher cash allowance to fund your income needs. But that doesn’t mean you have to give it all up and go [all] in defense.

Which option is right for me?

To get started, you can complete your pension fund’s risk profile questionnaire to help you choose an investment option that matches your risk tolerance.

In addition to the proximity of your retirement, you need to be comfortable with the level of risk you have chosen for your investment.

Ms Mullins said that even if your retirement is decades away, you shouldn’t necessarily choose a high-growth fund with risky asset allocation if you find headlines about stock market volatility stressful.

“It doesn’t matter whether it is young or old, it’s how comfortable you are with this volatility and the headlines,” Ms. Mullins said.

“You have to pass the sleep test – if something is preventing you from sleeping at night, change it. “

For more information on superannuation you can visit Moneysmart or the Association of Superannuation Funds of Australia (ASFA) Super Guru website.

The new daily is owned by Industry Super Holdings


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