Playing too safe with super can be dangerous
AUSTRALIANS are playing it safe with their super and it could be costly, increasing the chance their retirement savings will run out too soon.
Low investment confidence has led savers to favour cash and term deposits – the investments often coined as “conservative’’ – for their super investment strategy, according to The Australian Retirement Vision Survey.
Conservative investments offer comfort in that they roughly stay around the same value and pay a relatively predictable amount of income.
But it can be a false sense of security when the value of your super is only treading water, causing you to fall well short of what you need to fund your retirement.
The most conservative option is a cash-only fund, and at best, it would have ave provided about 4 per cent of income per annum over r the past five years. s.
A fund with between 40 and 60 per cent in shares and property – those investments s that will grow your wealth – could have notched you up as much as 9 per cent.
For someone with $200,000 in super, earning the average wage, the difference in returns over these five years is nearly $70,000. It’s far from small change and could mean the difference between being able to afford an annual holiday in retirement, or not.
The cost of playing it safe means a lower super balance than what we really need to pay for our retirement lifestyle, because we are living longer.
When super was first introduced we were only expected to live until age 77. Today we are living until our mid-80s. O Our life expe pectancy has in increased, but we are not savingin for a longerlo period of time to coverco the extraex years of spending.sp
To make your retirement savings last as long as possible, some shares and property investments are needed.
It’s understandable investors might feel nervous about having even a snippet of their super invested in the sharemarket, considering it can test even the most seasoned investors.
Focusing on the returns over three and five years, instead of just this month can be a way to lessen the angst that can come with owning shares.
History shows share prices do rebound over time. And you often get dividends along the way, which are generally greater than the return you would get on cash.
If you are close to retiring and want to have peace of mind over some of your savings, you should keep an eye on just how much you have allocated to shares.
Regardless of how old you are, it’s important to remember your super is an investment you will have for decades and the return over the long-term is far more important than that of only this year.