Searching for the post retirement silver bullet

Limiting super to 50% growth assets - perish the thought.

I want to make that decision, whether that's the right amount for me, not have some bureaucrat artificially dictate that I'm a conservative investor.

Forcing me to hold a properly diversified portfolio, that's what they should be doing. That would avoid the horror stories. Watching your portfolio fall and rise with the market is not a problem - no matter what Challenger's ads might say. Watching it go down the toilet because you've got it all invested in only a few assets that actually go broke so there's no hope of rebound over time, now that is the true horror story.

You're right. Watching your portfolio fall and rise with the market is not a problem - if you don't need to consume any of your capital to provide additional retirement income to your investment earnings, and can live with variable income with just the occasional need to tighten your belt.

For the non-affluent, the mathematics of portfolios in decumulation mean that market volatility is absolutely critical to their ability to meet their objectives. A share market that falls 10% requires a 20% recovery to regain its losses, and even more if you've reduced your capital base with an income drawing. It's like reverse dollar cost average during accumulation.

If you need to sell down shares at cyclical low points due to minimum drawdown rules, or simply to meet your normal income requirements, you will prematurely deplete your super if you are subject to an unfortunate sequence of returns.

By the same token, you might exceed your plan forecast if you are lucky enough to receive a favourable sequence, with positive returns for the first years of retirement and any negative returns only coming later when your balance is much lower.

Sounds like you're fortunate to not have to worry too much about market volatility, but most people aren't so lucky, especially if they've also planned on the assumption of "average" returns in volatile asset classes. This is a common approach but one which fails to acknowledge sequencing risk and can make retirement outcomes a lottery in which there inevitably winners and losers.

Stuart Barton
Challenger Limited

I think the conversations we are having at the moment would be very different had the government legislated that, perhaps no more than say 50% of a superannuation member's account balance can be invested in equities/LPTs. This would have avoided many horror stories.

With investment choice, can individuals be trusted to get the asset allocation right and avoid the bubbles? There is a lot riding on this philosophy.

There is an alternative. Read SIS Section 10 carefully.

The problem of silver bullet derives from the almost evangelistic fervour exhibited in exhorting people to save for retirement, ignoring current pressures:
* the legal rort of salary sacrifice pretending, with ATO as an accessory, that somehow otherwise taxable income is pre-tax if spent on super and cars;
* the short-lived Costello-time increase of contribution limit to dizzy $1 million;
* the pernicious pleasure of saving on tax regardless of the ultimate outcome, disengagement,
* propensity to have the cake and eat it too (want equity exposure but not the inevitable volatility: like getting on a roller coaster for a smooth ride)
* and, as pointed out, longevity.

Conflicts of interest and duty rife in retail and industry sectors have by no means been addressed yet. The only retirement security seems to apply to those who have a career in super making believe there is still hope.

Compulsion and preservation, combined with this sprawling industry of rent-seekers, seem a necessary condition for security. But by no means sufficient.

To move towards a solution we should
* encompass non-super assets (family home subject to a state-administered statutory reverse mortgage scheme, so before absent inheritors collect on the will, the taxpayer can have priority rights),
* bring the family back into caring for retired parents (symmetric with the current legal obligation not to abandon children on pain of wages being suborned),
* limit inheritance of super under the sole purpose test (by clawing back tax concessions if anyone other than the member or spouse claims the residual balances on death, a sort of reverse anti-detriment clause, calling it 'potential inheritance detriment'?).

To this we should add some hard work on managing material expectations down. Figuratively speaking, unite Adam Smith and Confucius in holy (retirement) matrimony, proving Rudyard Kipling wrong: the east can and should meet the west....

It’s fantastic to see this edition – shows real leadership. And lots of great articles!

Bravo for the all women line-up! A pleasant surprise, that makes even me ponder that yes, most financial advice does come from men (due to men being in higher, more influential positions etc etc, how about that), but that women work in finance, and have their own money too.

"Not trying to make a feminist statement" though?? Don't be afraid to!! Or afraid of offending your (male) readers. I do see it as a feminist statement, at least of awareness raising, and I appreciate it.

Nicolete

A very refreshing and concise summary.

Women are at the forefront of this issue - on average they live the longest and many spend most of their retirement leaving men and government to handle their money management (in whose interest?). For many women who face retirement from a background of divorce, part time work, family elder care and fragmented finances, their silver bullet should be an age pension from age 60 at least. If they were lucky enough to have been advised by their mum to go into the public service when they finished high school they would no financial worries with a lifetime indexed pension from 60.

As for the more fortunate with reasonably adequate retirement savings but unpredictable longevity, your final summation is "on the money" but will not work unless a minimum component in deferred indexed lifetime annuity is compulsory and government protected for tax concessional savings. We could leave it to everyone to choose which side of the road to drive on - we accept compulsory left side driving - seat belts and brethalysers are now accepted. Preservation is now generally accepted and is the main reason we have a huge savings industry measured in trillions - what's the problem with the last simple missing piece? It's also environmentally friendly because a deferred indexed lifetime annuity is the most equitable and simple way to recycle concessional retirement assets to the needy.