There is a common belief that in retirement you should have moved all your super into cash and defensive assets (such as fixed interest), but it really depends on your current situation.
If you are planning to retire at age 75 and live to 80, then it is probably a good idea to move your superannuation to cash because you can do so without having to worry about running out.
But retiring at age 60-65 and, on average, living for another 20-30 years, you just won’t experience the return needed to make those retirement savings last you over the length of your retirement.
Unfortunately for most people, they seriously underestimate how much they will spend in retirement. Even if they got the first year right, there’s a big chance they’ve forgotten to include inflation in their calculations as well.
People also generally underestimate how long they will be retired for.
That money is needed to last your entire retirement, not run out earlier.
So, how can you expect that money to follow you through without it generating a return on the way?
In most cases, you just can't.
Another thing to be wary of is if in a life cycle investment strategy, or similar, it’s common for superannuation funds to automatically change your investment strategy to something more conservative and continue to do so as you get closer to retirement age.
They assume that you want less volatility the older you get.
Volatility is not the thing that will do the most damage to your retirement plans, it is the lack of return needed to fund you throughout.
The thought that everybody needs to move their superannuation into cash by retirement is just wrong. There is no one-size-fits-all when it comes to financial planning and there are certain decisions that need to be made to achieve the best outcome for each individual.
Written by Ali Hogue.
Dallas Davison, Michael Hogue and Ali Hogue.