How to invest $1mil for best retirement

 I meet a lot of people who are preparing themselves for retirement who have approximately $1mil.

Therefore, I thought it is a nice, round figure, a good level of savings, and lots of people can relate to this scenario.

In this article however, I am not going to be advising you on investments, assets allocation or where the best returns are. This is a form of speculation.

Also, the choice will be completely different for each of one you, as each person has different needs, might be in a different retirement point, not to mention of different risk acceptance. And that makes a big difference in the way each person decides how to invest money.
In investing, there is no right or wrong, unless you follow a really bad, scam advice. But this one you should be able to recognise easily, if this is too good to be true and return promised are unusually high than market average, most likely it is a scam or a very high-risk investment idea.

So if I am not talking about the underlying investments, what am I going to talk about, you might ask.

Well, before you start investing, there should be a correct thought process, kind of your mental plan, but you could do this on a piece of paper if that helps, so you become very clear as to your investments reasons and outcomes you wish to achieve.

So let’s first create a picture:
– You are in your 60s
– You are ready to retire soon
– You own your home
– You have no outstanding debts
– You have $1mil of investable funds.

Question 1

What is the reason for your investing? What do you want to achieve from your money? Are you investing to replace your income? Are you going to continue working for few years, hence income is not essential at first, but rather in few years’ time.

This is actually a complex question, and you should really know your answers.
You should know if your main purpose of investing is to be provided with income.
If you are going to be working for few extra years, income might not be your main goal, but rather growing your savings.

In each case, your portfolio should be different, as you are trying to get a different result. This is where I find it very annoying with big super funds.

Super funds have been around for a long time, so they learned what to do with your money inaccumulation stage, but when it comes to retirement, this is a new territory for them. Unfortunately, they continue investing your savings as if you were in the superannuation accumulation stage, with the difference that they have to now pay you income.

And if they haven’t earned enough profit, they will just simply sell down some of your investments, no drama for them.

But what if your investment has just dropped by 10%? You are now accepting the loss of this investment. And as Warren Buffett says always buy low and sell high, not the other way around.

So you have to be smarter then just continuing your super accumulation investing into your retirement. There are better ways to invest for income in retirement. 

Question 2

Do you need access to your money? Or can you put funds away for a longer investment term.

Your investment plan should be different if you need access to money or not. It would be hard to believe that you need access to the full $1Mil. Work out first how much you need as funds available.

Keep that part in cash or fixed interest, or term deposit depending how quickly you need it. If this is just for your feeling of security, be honest with yourself. How much do you need to feel secure, and just keep that part in the bank. For most people anything between $20,00 to $50,000 is sufficient for cash security. The rest should be invested, and then return to Question 1 – your reason for investing. 

Question 3

Do you want to have control over investing, or you are happy to give it away?

This is a big one. Usually, we say we want to have control over our money, most certainly I do, but how much do you know about investing.

So you have to make a choice:

• Invest by your self – if you have a great knowledge, the time and inclination to learn and keep up with investment word, self-investing is for you. Do all your research, analyses, comparisons, tables and graphs.
• If this is not you, then you would need to give up that control and choose the investment manager or adviser, regardless if this is your super or private money.

The other very important aspect of investing and who you wish to assist you with those investment decisions is:

• Investing with the big super funds – you have no control at all, and there is already lots of talk that soon our government will help itselves to your money to pay for the projects they have on agenda, but no budget for it. With our super savings being one of the biggest in the world retirement fund, it is impossible for the government not to try to help themselves to your money. I do not want my savings to be part of it, as I have never seen a government that can actually make a profit out of any project.
  
• Investing in a super or a pension account where you actually choose investments together with your adviser I think is a great option, as you have professional assistance and advice, and you have your input, but most certainly you are not losing control over how your money is invested.

Of course there will be some years you earn less and others when your returns are greater, but you will always have control as to where your money goes, and at what point you can have access to your savings.

Question 4

Is superannuation an investment option for you or not?

As we all know, investing in superannuation is a good option. Mainly due to its tax benefits. But be very wary of the fact that our government together with most super funds have a vested interest to keep your savings there in super and not in your pocket.

So you will hear more and more about fixed, lifetime pensions, that will promise you income for life in exchange for no access to your savings. This is heaven for all super funds. They will have your savings forever and you can say goodbye to spending it for yourself or your loved ones. There are better options available to you, and you have to do is ask.

Question 5

How much of asset and income security do you need in comparison to making your money grow, even if this means accepting some ups and downs in returns from year to year.

This is a question that most people really cannot give a good answer to, but the easiest way to figure this one out is to calculate what is your “must have income “. That level of income should be delivered to you no matter what from all your financial sources, and it should be organised in the most secure, predictable way with no risk and no “hoping for the market to give me good returns” way.

The rest of your income is “additional, over and above the Must have income” and that portion can be delivered from other income sources, or investments of a more volatile nature.

Question 6

Is Age Pension an option for me, and if yes when and what should I do with my investment plan to maximise Age Pension?

You should really give this question a great consideration. I keep saying that Age Pension is one of the greatest income streams you could receive in Australia. Not only you can actually plan for it, organise your money so you can maximise the pension benefit, if not immediately, maybe in a year or two or later, but whenever you can receive some Age Pension, please remember it is not just the income you are receiving, but great additional benefits courtesy of Pensioner HealthCare Card.

And the most amazing thing is, that if you answer all those questions correctly, you could plan your retirement to achieve all those points, this is when retirement income becomes so very predictable, secure, stable and lifestyle so much more enjoyable.