When it comes to retirement there is a lot of emphasis put on superannuation.

Superannuation offers Australians the opportunity for financial security in retirement.

However, many people simply put their money into superannuation and want to forget about it until retirement. They have effectively locked away valuable capital until potentially age 65 hoping for maximum accumulation but often don’t strategically plan how those funds will accumulate. Or they may not appreciate that their investment strategy may change as retirement approaches or commences. Or they may simply realise too late they have wasted valuable years with no targeted investment strategy for those funds.

Your retirement plan should include two separate strategies – one for superannuation and one for investment.

superannuation strategy

This strategy represents how much you should put into superannuation before you retire. This will affect how much money you have now and in your future. Superannuation provides a low tax environment with only 15% tax on funds in the accumulation phase and 0% in the retirement phase. And as we all know, lower tax means greater capital to invest and income to reinvest. Effective structuring can also reduce tax savings outside of superannuation due to the tax deductibility of some contributions. But your superannuation strategy will only provide you with funds in superannuation when you retire – a kind of savings plan for retirement.

investment strategy

Your investment strategy, however, should serve to maximise those funds in superannuation. How your money is invested will greatly impact on how much you accumulate and how you can use those funds.

The point is you need to match your superannuation and investment strategies before you retire to ensure that you are able to live the lifestyle you want when a 9-5 day is fading into memory. Ask yourself, “How much do I need to live off when I retire?” and “What returns will I need to ensure this can be achieved?”…

The example below illustrates how superannuation benefits from an investment strategy.

John is in an accumulation phase. He still has 10 years until he retires. He wants to maximise the amount of assets at retirement and so he is contributing the maximum amount he can afford via tax deductible superannuation contributions. He is investing for capital growth and he doesn’t need to rely on income, therefore his strategy may have a higher weighting of growth investments instead of defensive assets, such as cash and fixed interest securities. When John retires he may need to increase his investments in defensive assets so they provide a higher amount of income to pay his pension. So a growth portfolio may be more appropriate for John as he accumulates his assets while a balanced portfolio may suit his retirement objectives.

The diversification of John’s investments will depend on his risk profile. The table below outlines how the investment breakdown can differ:

Example 1 – weighting of strategic asset allocation

Growth Balanced
Growth Assets  85%  70%
 Defensive Assets  15%  30%
 Australian Equities  45%  35%
 International Equities  25%  20%
 Property  15%  15%
 Fixed Interest  10%  25%
 Cash  5%  5%
 100%  100%

Thus John’s investment strategy, i.e. the strategic allocation of his assets between defensive and growth assets, holds a significant influence on his ability to achieve his goals for retirement. By minimising John’s tax and maximising the amount of money in super, coupled with a tailored investment strategy aligned to John’s goals and risk profile, his strategy significantly increases the likelihood of John achieving his wealth accumulation and retirement objectives.

You should review your investment and superannuation strategies regularly to ensure they are both working towards what you will need and want in retirement. Call elliotts on 07 3833 3999 now to review your strategy now.