New ideas take timing out of super

We need to recognise that our super industry is a young one, and will continue to evolve, writes John Brumby. Source: Supplied

ASK a golfer the secret to a booming drive, a batsman how to hit a big six, or a big AFL forward about marking inside 50 on the siren, and you will hear the same counterintuitive advice again and again: It's not about pure skill, but timing.

We should all take heed of this lesson when it comes to our superannuation.

In 2008, the Global Financial Crisis hammered home the critical importance of timing. Tens of thousands of Australians looking to conclude their working lives suddenly found their super balances decimated and their retirement plans in ruins.

Even those who had invested with super funds with past records of high average net returns found themselves affected by unfortunate timing.

Some of those retiring just after the GFC crash were up to 30 per cent behind those who pulled out just before, despite having near identical balances in 2007.

A 30 per cent difference in total balance can cut the length of time retirement savings will last in half -- from 20 to 10 years.

In industry jargon, such unfortunate timing is known as "sequencing risk".

The waxing and waning of the market over a working life will tend to balance out on average. But if it tanks just before you retire, it can sting far more than if it happens at the beginning of your career.

With four million Australians due to retire in the next decade, sequencing risk has rocketed to the attention of many.

Rather than thinking of super simply as a pot of gold tucked away for "the future", Australians are starting to consider how that pot can be protected.

Unfortunately, this risk is not the only issue facing those in retirement.

No one has a clear idea of how long they will live. Life expectancy, and therefore time spent in retirement, is a great unknown.

A 2011 MetLife Insurance study found that 52 per cent of Australians over 51 were "extremely concerned" about outliving their retirement savings.

The historical response to having inadequate savings to cope with this longevity risk has been to invest more aggressively. But even a well-managed aggressive approach leaves you open to risk.

It is clear that timing is critical. But unless your capacity to read the future is better than mine, you will have no way of accurately predicting if the time you decide to retire is going to correspond with a major market downturn. So what's the answer?

Some funds have started to tailor strategies to individual members and groups of like members, instead of lumping everyone together. But this addresses only part of the solution.

MTAA Super has spent two years working with MetLife Insurance to develop a new approach for industry funds offering a guaranteed income for life, payable as a pension, even if a member's account balance reaches zero. While the annual income can go up or down, the formula is certain, so pensioners can plan their retirement finances around it.

I believe this is a vital evolutionary step for the Australian superannuation system.

In the past, those seeking guaranteed income products havebeen bereft of flexible options, due to a system that is too heavily focused on simply achieving better than average rates of return.

The new "guaranteed income for life" products offer peace of mind in a way that more traditional approaches cannot.

Australia led the world when superannuation was introduced in the 1980s. We continue to lead, with the Federal Government recently boosting the super guarantee to 12 per cent. It requires only the briefest glance overseas to realise just how well we have handled our retirement planning.

We also need to recognise that our super industry is a young one, and will continue to evolve to meet the challenges of working and retiring Australians. I am optimistic we can manage the transition smoothly.

John Brumby is chair of MTAA Super and a former premier of Victoria.

View the original article here

New ideas take timing out of super

We need to recognise that our super industry is a young one, and will continue to evolve, writes John Brumby. Source: Supplied

ASK a golfer the secret to a booming drive, a batsman how to hit a big six, or a big AFL forward about marking inside 50 on the siren, and you will hear the same counterintuitive advice again and again: It's not about pure skill, but timing.

We should all take heed of this lesson when it comes to our superannuation.

In 2008, the Global Financial Crisis hammered home the critical importance of timing. Tens of thousands of Australians looking to conclude their working lives suddenly found their super balances decimated and their retirement plans in ruins.

Even those who had invested with super funds with past records of high average net returns found themselves affected by unfortunate timing.

Some of those retiring just after the GFC crash were up to 30 per cent behind those who pulled out just before, despite having near identical balances in 2007.

A 30 per cent difference in total balance can cut the length of time retirement savings will last in half -- from 20 to 10 years.

In industry jargon, such unfortunate timing is known as "sequencing risk".

The waxing and waning of the market over a working life will tend to balance out on average. But if it tanks just before you retire, it can sting far more than if it happens at the beginning of your career.

With four million Australians due to retire in the next decade, sequencing risk has rocketed to the attention of many.

Rather than thinking of super simply as a pot of gold tucked away for "the future", Australians are starting to consider how that pot can be protected.

Unfortunately, this risk is not the only issue facing those in retirement.

No one has a clear idea of how long they will live. Life expectancy, and therefore time spent in retirement, is a great unknown.

A 2011 MetLife Insurance study found that 52 per cent of Australians over 51 were "extremely concerned" about outliving their retirement savings.

The historical response to having inadequate savings to cope with this longevity risk has been to invest more aggressively. But even a well-managed aggressive approach leaves you open to risk.

It is clear that timing is critical. But unless your capacity to read the future is better than mine, you will have no way of accurately predicting if the time you decide to retire is going to correspond with a major market downturn. So what's the answer?

Some funds have started to tailor strategies to individual members and groups of like members, instead of lumping everyone together. But this addresses only part of the solution.

MTAA Super has spent two years working with MetLife Insurance to develop a new approach for industry funds offering a guaranteed income for life, payable as a pension, even if a member's account balance reaches zero. While the annual income can go up or down, the formula is certain, so pensioners can plan their retirement finances around it.

I believe this is a vital evolutionary step for the Australian superannuation system.

In the past, those seeking guaranteed income products havebeen bereft of flexible options, due to a system that is too heavily focused on simply achieving better than average rates of return.

The new "guaranteed income for life" products offer peace of mind in a way that more traditional approaches cannot.

Australia led the world when superannuation was introduced in the 1980s. We continue to lead, with the Federal Government recently boosting the super guarantee to 12 per cent. It requires only the briefest glance overseas to realise just how well we have handled our retirement planning.

We also need to recognise that our super industry is a young one, and will continue to evolve to meet the challenges of working and retiring Australians. I am optimistic we can manage the transition smoothly.

John Brumby is chair of MTAA Super and a former premier of Victoria.

View the original article here

New ideas take timing out of super

We need to recognise that our super industry is a young one, and will continue to evolve, writes John Brumby. Source: Supplied

ASK a golfer the secret to a booming drive, a batsman how to hit a big six, or a big AFL forward about marking inside 50 on the siren, and you will hear the same counterintuitive advice again and again: It's not about pure skill, but timing.

We should all take heed of this lesson when it comes to our superannuation.

In 2008, the Global Financial Crisis hammered home the critical importance of timing. Tens of thousands of Australians looking to conclude their working lives suddenly found their super balances decimated and their retirement plans in ruins.

Even those who had invested with super funds with past records of high average net returns found themselves affected by unfortunate timing.

Some of those retiring just after the GFC crash were up to 30 per cent behind those who pulled out just before, despite having near identical balances in 2007.

A 30 per cent difference in total balance can cut the length of time retirement savings will last in half -- from 20 to 10 years.

In industry jargon, such unfortunate timing is known as "sequencing risk".

The waxing and waning of the market over a working life will tend to balance out on average. But if it tanks just before you retire, it can sting far more than if it happens at the beginning of your career.

With four million Australians due to retire in the next decade, sequencing risk has rocketed to the attention of many.

Rather than thinking of super simply as a pot of gold tucked away for "the future", Australians are starting to consider how that pot can be protected.

Unfortunately, this risk is not the only issue facing those in retirement.

No one has a clear idea of how long they will live. Life expectancy, and therefore time spent in retirement, is a great unknown.

A 2011 MetLife Insurance study found that 52 per cent of Australians over 51 were "extremely concerned" about outliving their retirement savings.

The historical response to having inadequate savings to cope with this longevity risk has been to invest more aggressively. But even a well-managed aggressive approach leaves you open to risk.

It is clear that timing is critical. But unless your capacity to read the future is better than mine, you will have no way of accurately predicting if the time you decide to retire is going to correspond with a major market downturn. So what's the answer?

Some funds have started to tailor strategies to individual members and groups of like members, instead of lumping everyone together. But this addresses only part of the solution.

MTAA Super has spent two years working with MetLife Insurance to develop a new approach for industry funds offering a guaranteed income for life, payable as a pension, even if a member's account balance reaches zero. While the annual income can go up or down, the formula is certain, so pensioners can plan their retirement finances around it.

I believe this is a vital evolutionary step for the Australian superannuation system.

In the past, those seeking guaranteed income products havebeen bereft of flexible options, due to a system that is too heavily focused on simply achieving better than average rates of return.

The new "guaranteed income for life" products offer peace of mind in a way that more traditional approaches cannot.

Australia led the world when superannuation was introduced in the 1980s. We continue to lead, with the Federal Government recently boosting the super guarantee to 12 per cent. It requires only the briefest glance overseas to realise just how well we have handled our retirement planning.

We also need to recognise that our super industry is a young one, and will continue to evolve to meet the challenges of working and retiring Australians. I am optimistic we can manage the transition smoothly.

John Brumby is chair of MTAA Super and a former premier of Victoria.

View the original article here

New ideas take timing out of super

We need to recognise that our super industry is a young one, and will continue to evolve, writes John Brumby. Source: Supplied

ASK a golfer the secret to a booming drive, a batsman how to hit a big six, or a big AFL forward about marking inside 50 on the siren, and you will hear the same counterintuitive advice again and again: It's not about pure skill, but timing.

We should all take heed of this lesson when it comes to our superannuation.

In 2008, the Global Financial Crisis hammered home the critical importance of timing. Tens of thousands of Australians looking to conclude their working lives suddenly found their super balances decimated and their retirement plans in ruins.

Even those who had invested with super funds with past records of high average net returns found themselves affected by unfortunate timing.

Some of those retiring just after the GFC crash were up to 30 per cent behind those who pulled out just before, despite having near identical balances in 2007.

A 30 per cent difference in total balance can cut the length of time retirement savings will last in half -- from 20 to 10 years.

In industry jargon, such unfortunate timing is known as "sequencing risk".

The waxing and waning of the market over a working life will tend to balance out on average. But if it tanks just before you retire, it can sting far more than if it happens at the beginning of your career.

With four million Australians due to retire in the next decade, sequencing risk has rocketed to the attention of many.

Rather than thinking of super simply as a pot of gold tucked away for "the future", Australians are starting to consider how that pot can be protected.

Unfortunately, this risk is not the only issue facing those in retirement.

No one has a clear idea of how long they will live. Life expectancy, and therefore time spent in retirement, is a great unknown.

A 2011 MetLife Insurance study found that 52 per cent of Australians over 51 were "extremely concerned" about outliving their retirement savings.

The historical response to having inadequate savings to cope with this longevity risk has been to invest more aggressively. But even a well-managed aggressive approach leaves you open to risk.

It is clear that timing is critical. But unless your capacity to read the future is better than mine, you will have no way of accurately predicting if the time you decide to retire is going to correspond with a major market downturn. So what's the answer?

Some funds have started to tailor strategies to individual members and groups of like members, instead of lumping everyone together. But this addresses only part of the solution.

MTAA Super has spent two years working with MetLife Insurance to develop a new approach for industry funds offering a guaranteed income for life, payable as a pension, even if a member's account balance reaches zero. While the annual income can go up or down, the formula is certain, so pensioners can plan their retirement finances around it.

I believe this is a vital evolutionary step for the Australian superannuation system.

In the past, those seeking guaranteed income products havebeen bereft of flexible options, due to a system that is too heavily focused on simply achieving better than average rates of return.

The new "guaranteed income for life" products offer peace of mind in a way that more traditional approaches cannot.

Australia led the world when superannuation was introduced in the 1980s. We continue to lead, with the Federal Government recently boosting the super guarantee to 12 per cent. It requires only the briefest glance overseas to realise just how well we have handled our retirement planning.

We also need to recognise that our super industry is a young one, and will continue to evolve to meet the challenges of working and retiring Australians. I am optimistic we can manage the transition smoothly.

John Brumby is chair of MTAA Super and a former premier of Victoria.

View the original article here

Super timing is a trap

Unfortunate timing can badly crack your nest egg. Source: National Features

IF YOU have seen, or been, a grumpy retiree in the past five years, it's understandable.

Trying to time the market may be a potential trap for investors generally, but market timing becomes vital for those preparing for retirement. And for recent retirees the timing was a shocker, thanks to the global financial crisis literally wiping out their life's superannuation savings and then some.

Michael Drew, professor of finance at Griffith University, says the sequence of investment returns can severely impact how much people have at retirement."If you have a 25 per cent fall in markets in the past five years of your working life, that's equivalent to about 1 1/2 times your lifetime contributions to superannuation," Prof Drew told a FINSIA superannuation briefing this month.

For the record, Aussie shares a cornerstone of many investment portfolios last decade sunk more than 50 per cent during the GFC.

"Surely we can do something better than serve up astrological risk: Do the planets align around your retirement date?" says Prof Drew. "How can we have the same asset allocation for everybody?"

Some super funds are taking notice, changing the asset mix for older members who are in their fund's default option.

The message for everybody else is to keep a closer eye on super and investments as retirement approaches, and perhaps decide to beef up their conservative assets such as cash and fixed interest earlier, even if it means missing potential gains from growth assets such as shares and property.

Everyone must make their own decision based on their tolerance to risk, what they want from retirement, and their level of potential grumpiness.

View the original article here