Question 1. I am 64 and wanting to retire in 18 months time. At the commencement of the pandemic I changed my superannuation investment allocation to cash. I missed the big falls of March 2020.

I am now too frightened to move it anywhere for fear of another big downturn in the markets due to the election, war in Ukraine and the ongoing pandemic. Subsequently I have missed the steady gains of the last two years.

I don’t have a huge amount of super that warrants financial advice but am stuck by my own fears and inertia.

This seems to be a very common scenario, so don’t feel you are the only one in this boat.

Even though you are close to retirement, it’s important to realise your super should hopefully last your lifetime, so you still have plenty of years in the market to stay invested.

Risk and return go hand in hand, so it’s essential to always look at them together.

Higher return does mean higher risk.

What does higher risk mean? That your funds will have higher volatility (balance will go up and down) at a more frequent rate and by bigger amounts.

So firstly, it’s important for you to work out your tolerance to risk, how much can you accept to get a higher long-term return.

Choose an investment option that matches this, then stick to it long term, regardless of short-term market movements.

There will always be something going on that creates fear and uncertainty in relation to investing, but short-term market timing is next to impossible and I would not recommend it.

One place to start is to have a look at the risk classification of your super funds investment options.

APRA requires the funds to classify them in bands from one to seven based on a Standard Risk Measure, which is used across the super industry to help members compare the risk levels of investment options.

This measure estimates the probability of an investment option delivering a negative annual return in any one year and multiplying this by 20. This provides an estimate of how often you can expect to receive a negative annual return in any 20-year period.

Below are the bands:

This information will be displayed either on the fund’s website next to the description of each investment option, and/or in the fund’s investment guide.

Next, there are many free online tools, many provided by super funds, to help you work out your risk tolerance, you should give these a try.

Finally, you have stated that you don’t feel you have enough money to receive financial advice.

As you approach retirement a financial adviser can not only help with recommending appropriate products and investment options but help you with retirement planning.

Additionally, many super funds, and nearly all industry super funds, offer investment choice advice at no additional cost, i.e. it’s part of your membership fee. So, at the very least you should speak with your fund about this service.

Question 2. We have a mortgage on our residential home ($36K) with low interest of 2.19 per cent. We have paid in excess and can withdraw up to $200K. Another mortgage is on an investment property ($450K) with interest rate of 2.55 per cent.

Should I withdraw $200K and pay into the investment property mortgage? Would it save me some money on interest or it is trivial?

Yes, it would save you money. On a simple interest calculation, $200,000 multiplied by the different interest rates is equal to $720 per year. But when you factor in compounding, then the savings will be much greater.

However, the issue is the original intent of that loan, it was not for investing purposes and you have to be able to separately identify that portion of the loan to be able to claim a tax deduction.

Whether you apportion it within the same loan, or create a separate identifiable amount, it can get a bit messy.

So yes, it’s worth doing but you should speak with your lender/mortgage broker and tax adviser to ensure it is structured in a way where you can still claim the maximum tax deduction.

Question 3. I’m retiring in two years and will be eligible for a part age pension. In the past year I paid substantial sums for my contribution to my two daughters’ weddings. Will Centrelink treat these as gifts?

From the date you apply for the age pension Centrelink takes into consideration any gifts made in the five years prior.

The good news is that contributing to your child’s wedding to pay for things like venue hire, food, entertainment etc. is not considered a gift. However, if you provided them cash as a wedding gift, then this would be counted.

Craig Sankey is a licensed financial adviser and head of Technical Services & Advice Enablement at Industry Fund Services

Disclaimer: The responses provided are general in nature, and while they are prompted by the questions asked, they have been prepared without taking into consideration all your objectives, financial situation or needs.

Before relying on any of the information, please ensure that you consider the appropriateness of the information for your objectives, financial situation or needs. To the extent that it is permitted by law, no responsibility for errors or omissions is accepted by IFS and its representatives. 

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