How to make retirement pension last longer

How to make retirement pension last longer

In March 2020 markets around the world experience another market crash, but unlike GFC the recovery was fast and for many unexpected. But to date, this is only partial recovery and for a few months now, markets around the world have stagnated waiting for further indication: what is happening with COVID and where are we heading from here.

For obvious reason, that created lots of worry and uncertainty for investors and especially retirees or people that are nearing retirement, with many asking questions such as:

Considering what has been happening around the world, how can I prolong the life of my fund?

In this article, I will try to provide you with some steps you could take to improve the longevity of your fund and ensure you can be provided with your retirement income for longer:

1. Improve the starting balance of your fund

If you are pass the age of 50 with another 10 to 15 years to retirement or less, you should start concentrating on finding out all the specific strategies available to you in order to increase the value of your superannuation and how you can keep on contributing to your fund as much as possible in the most tax and growth efficient manner.  Not only superannuation is a very tax-driven type of investment environment but, once you have money transferred to a pension fund, this is where the tax heaven starts, so you really want to create this big nestegg of tax-free investments where you keep the majority of your savings for your retirement.

2. If you already have a pension fund, each year draw the minimum amount.

On the first of July of every single financial year, your trustee will be recalculated value of your fund and will send you a letter advising what the minimum pension payment is for the upcoming year that you need to draw. You can draw more than that, but really if you stick to that minimum year after year, your pension fund will last you for your life expectancy, and this is exactly what it is designed to do. By only drawing the minimum income calculated, you are allowing your pension fund to participate in the market for as long as possible, therefore benefit from market recovery. By drawing the least possible, your fund will be able to provide you with ongoing income for as long as possible, which should be your life expectancy.

Feel free to watch my video explaining the issue of minimum pension payments for 2020-21:
Should I reduce my pension payments and why?

3. Reduce any capital withdrawals

My recommendation has always been to keep an extra additional account elsewhere. This is for your emergencies and that should not be part of your superannuation or your pension strategy. If you have sufficient funds in your “rainy-day account”, you are able to minimize any capital withdrawals from your retirement fund, investment portfolio can be organised efficiently knowing that there is no sudden investment sales and asset withdrawals, therefore even returns can be more predictable, and ultimately prolonging life of your pension of your super.

4. Improve your fund performance.

By creating a well-diversified portfolio of investment products that really work together and complement each other you can most certainly add life to your fund. There is a lot of research that needs to be done for the portfolio to be efficient in the rising or falling market. Do not just accept a default fund. Every superfund is required to provide you with this option, in case you really do not understand how to choose your best portfolio, but this is not a type of a fund to keep your money-saving invested for a long time.

Your investment portfolio should be well-diversified between different asset classes, different managers, with different investment styles, operating in different geographical environment or different industries with different investment philosophies. As you can see there is quite a lot of information and science behind that.

5. Don’t be too conservative

Our retirement is getting longer and longer, and this is the very reason why we need to be well prepared and save enough, so we are supported with income for life. Listen to my video that will explain exactly how long you are expected to live in your retirement, so you can make plans and organise your money effectively to support you for life:
How long will you live in retirement? How long will your money last?

So if you are expected to enjoy your retirement for as many years as you have been working, you should not be too conservative with your investments, because we are no longer talking about short-term investment time-frame.  You are expected to be around for a very long time and you should give your fund every chance to support you with income for as long as possible.

6. Review fees and charges

There are many types of fees and charges included in super, pension, and investment accounts and they vary between funds. Some of them are necessary, such as the trustee or administration fees, you have to pay for fund managers and for their performance, and if you have financial planner, please pay for your financial planner. This is the person that provides you with many strategies of how to:

• improve diversification of your portfolio,
• increase security of your portfolio
• lower market volatility,
• improve your Centrelink age pension eligibility
• or any other benefits that your financial planner may find.

You should see your financial planner at least once a year if you have an annual service agreement. If you have such an agreement, but you don’t hear from your planner – then change your financial planner, but I cannot stress enough how beneficial for you is such a relationship.

But there are certain fees that you can reduce or removed altogether if, for example, you are paying for features that you do not need and use.

By implementing those 6 steps you are able to prolong life of your retirement savings and ultimately enjoy being supported by your income stream for longer.

If you want to learn more about pension funds, read this blog that explains main points of this beneficial income stream: The Best Retirement Income Stream 

If you find this a bit confusing, too demanding or just outside of your scope, feel free to reach out and I will be happy to assist you setting up your life-long income stream with security, predictability, efficiency, and ease, so you can feel protected and comfortable in knowing your money will support you for as long you are alive.

by:  Katherine Isbrandt CFP®
Money Strategist & Retirement Planner
Principal of About Retirement